Low taxes, energy rates and land: How Tennessee grew its auto sector
March 21, 2022At a White House state dinner in February 1979, President Jimmy Carter pushed the governor attendees to persuade Japanese companies to make in the United States what they sell in the United States.
The nation was in a recession and needed investment that created new jobs. Former U.S. Sen. Lamar Alexander, Tennessee’s Republican governor at the time, listened intently knowing his own state was the third poorest in the nation. After that dinner, he jumped on a plane to meet with Nissan Motor Corp. executives in Japan.
Tennessee finally landed an investment from Nissan in 1980, starting the southern state’s auto story that is still generating new chapters after more than 40 years. Five years later, then-General Motors Corp. brought its Saturn plant to Spring Hill, Tennessee — and that’s about to happen again with the coming of Ford Motor Co.’s Blue Oval City to a small town 45 minutes outside Memphis in west Tennessee.
As the global auto industry and startups turn to electrification, Detroit’s own GM and Ford have picked Tennessee to help them deliver on their EV promises. Here, both are investing billions to build EVs and make the battery cells to power those EVs. Credit Tennessee’s land availability, location and lower energy costs that are likely to continue to attract new investment in the electric future.
“In some ways, I think Tennessee is the leading auto state,” Alexander told The Detroit News in an interview. “Until we have more research and development and more North American headquarters, we still got to scramble to earn our spurs as the leading auto state. But right now, based upon the attractiveness of a state to a manufacturer or supplier, Tennessee looks pretty good.”
From 2019 to 2021, Tennessee saw $10.7 billion in investments for EVs from the automakers already established there: namely, Volkswagen AG and GM, as the state is welcoming Ford under terms of a deal announced last fall.
VW in 2019 said it would invest $800 million in its Chattanooga plant for EV production starting this year. GM in 2020 said it would spend $2 billion to revamp its former Saturn plant, Spring Hill Assembly, to build both EVs and gas-powered products. The automaker and battery supply partner LG Energy Solution in 2021 announced Spring Hill would be home to their second $2.3 billion battery cell manufacturing site.
“We made a huge commitment to our Spring Hill team with our $2 billion investment to transition the facility to build EVs because they are an experienced, dedicated team that has a long history of building high-quality products,” GM spokesman Dan Flores said in a statement.
And Ford plans to invest $5.6 billion to build the BlueOval City campus and become the first to develop the state’s Memphis Regional Megasite. There, Ford plans to build next-generation F-Series electric trucks starting in 2025 and to make battery cells with partner SK Innovation. The site was already prepped with a $174 million investment by the state in infrastructure upgrades.
The latest push to get more auto investment in Tennessee came right from the top: Gov. Bill Lee, a Republican.
“When Governor Lee was sworn in, in one of our very early meetings, he said: ‘Bobby, I want us to focus on this transformation from the internal combustion engine to the electric vehicle. And it’s going to be transformational, and we’re going to do everything we can not only to protect our existing turf but also expand our footprint when it comes to recruiting companies,'” said Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development.
Michigan remains mighty
Michigan is still flying the Motor City flag high. The state is home to the Detroit three automakers and claims the headquarters, regional headquarters or technical centers of more than 20 others, according to a report by MICHauto at the Detroit Regional Chamber.
“When it comes to the density of R&D and engineering, there just is no comparison,” said Glenn Stevens, executive director of MICHauto and the Detroit Regional Chamber’s vice president of automotive and mobility initiatives. “However, Tennessee has a lot of really strong attributes to it. First of all, its geography is ideally situated as a kind of central point in not just the eastern part of the U.S., but when you get over to Memphis, you’re getting pretty close to the epicenter of the United States.”
Michigan today has a higher vehicle output than the southern state. Vehicle production here represented 20.1% of all U.S. auto production in 2021 and Tennessee’s represented 5.4%, according to the Center for Automotive Research. In December 2021, Michigan’s auto employment stood at 170,000 compared to Tennessee’s 73,900.
Like Tennessee, Michigan also has seen several automaker investment announcements since 2019, including, most recently, GM’s $7 billion investment to build and support mostly EV production here. Stellantis NV, formerly Fiat Chrysler Automobiles, in February 2019 announced a $4.5 billion investment in five Michigan plants including transforming a partially idled engine complex in Detroit into an assembly plant.
In December 2019, Ford announced a $1.45 billion investment at its Wayne, Michigan, plant for Bronco and Ranger production. And in September 2020, the Dearborn automaker said it would invest $700 million in its Rouge complex to support electric F-150 Lightning production; it later added $250 million to boost production capacity.
The loss of the $11.4 billion investment from Ford in both Tennessee and Kentucky pushed Michigan leaders to act swiftly to get GM’s investment here. Gov. Gretchen Whitmer partnered with Republican lawmakers to create a $1 billion economic development program that could spur investment like GM’s. The state gave GM $824.1 million in incentives for its $7 billion investment.
“Michigan is the birthplace of the automotive industry, and is poised to remain the global epicenter as we move into the next revolution of the transportation industry,” said Otie McKinley, spokesman for the Michigan Economic Development Corp., in a statement. “Since January of 2019, the MEDC has approved projects that committed to create over 20,000 jobs and $16.5 billion in private investment in the mobility and automotive manufacturing cluster.”
Starting Tenn.’s auto story
The multibillion-dollar auto projects coming to Tennessee now blossomed from the first auto investment Nissan made more than 40 years ago thanks to a simple map.
When Alexander was pitching his state to the Japanese automaker’s brass, he brought with him a satellite map of the United States with all the lights on at night. And when the Nissan executives asked Alexander where Tennessee was, he pointed right to the middle.
“That made a difference to Nissan because they were number one looking for a central location,” he said. But getting Nissan to sign on was just the first step. The state had to get its roads and infrastructure ready, and develop a supplier base.
“At that time, Tennessee had virtually zero auto industry,” Alexander said. “All the auto industry was where the auto was invented in the midwestern part of the United States.”
For Nissan, the state government spent $12 million for new roads and $7 million for employee training, according to a New York Times article in 1985. After the Nissan investment, Alexander sought to win the much-desired Saturn investment that multiple states were fighting to get.
GM and Saturn were sold on the Tennessee idea after Alexander told former CEO Roger Smith: “Instead of just competing in the showroom with the Japanese cars that are eating your lunch, why don’t you compete head-to-head where they’re made?”
GM liked that idea and selected Spring Hill for Saturn’s home. After that, Tennessee’s auto boom hit hard. The state built a four-lane highway to make way.
“And over the next 20 to 25 years about 1,000 suppliers came to Tennessee,” Alexander said. “And then came Volkswagen to Chattanooga and now more recently Ford to West Tennessee.”
Tennessee’s attributes
Aside from the automaker presence in Tennessee, the state also has more than 920 auto suppliers, including Japanese company Denso Corp., whose primary manufacturing center in North America for electrification and safety systems is located in Marysville, Tennessee.
Having an “experienced local supply base” is one of the factors that encouraged GM’s investment here, spokesman Flores said. Incentives also helped, including a $60 million economic development grant for Ultium Cells. And GM received $35 million for a FastTrack Job Training Assistance Program grant from the Tennessee Department of Economic and Community Development. The state approved some $884 million in incentives for Ford’s Blue Oval City.
Another selling point: Tennessee also has no income tax on wages and low property taxes. WalletHub ranks Tennessee 15th in the country for lowest property taxes compared to Michigan at 38th. Overall, Tennessee ranks second to last in the country for its overall tax burden, according to a WalletHub study.
Low energy costs aided the state in landing mega auto investments here. In 2020, the average retail cost for electricity was $9.52 per kilowatt hour — the 30th lowest ranking nationally, according to the U.S. Energy Information Administration. Michigan’s average cost for electricity was $12.21 per kilowatt hour that year. And the U.S. average rate was $10.59.
The state also has been preparing sites to make sure they are ready to go, so when Ford came looking the state had what it wanted. To help with that, Tennessee has the Tennessee Valley Authority, a utility provider that also does economic development. TVA covers seven states, and years ago it asked states to come up with a list of large industrial sites that could be developed for the auto industry.
“We’ve been on the offense to make sure that we’ve got the resources, not only the incentive resources, but also we’ve got enough shovel ready sites because a lot of these suppliers are now being required to have a quicker just-in-time process,” Rolfe said.
Up next is making moves on developing workforce, a struggle across the U.S. and one all states with major manufacturing sites are having to deal with.
“Economic growth depends on talent, business climate and the strength of communities where people want to work and build lives,” Stevens said. “For Michigan to continue to be a leader in the auto industry and its mobility and electrification transformation, we are going to need to lead in innovation, building the high-tech talent pipeline and by investing in communities and their physical and digital infrastructure.”