The US state of Michigan epitomises the pros and cons of the shifting tides within the auto industry. While its largest city, Detroit, is synonymous with the 20th century decline of America’s motor industry, Michigan accounted for about a fifth of US vehicle production in 2021, and has recently secured major electric vehicle (EV) and battery investments.
In March 2022, South Korean battery maker LG Energy Solution (LGES) pledged to invest $1.7bn to increase capacity five-fold at its plant in Holland, Michigan. A few months prior, Detroit-based automaker General Motors (GM) had announced $7bn of EV investment across the state, including a new battery plant in Lansing as part of its joint venture with LGES called Ultium Cells.
Quentin Messer Jr., the CEO of Michigan Economic Development Corporation, the state’s development agency, sat down with fDi to discuss LGES’s expansion project and how to manage supply chain disruption.
Q: What did it take to secure LGES’s battery plant expansion project?
A: We are always desirous of being in contact with companies who are already here in Michigan. When I came on board in July 2021, we were already knee-deep in conversations with our partners at LGES about their growth plans and aspirations.
It was a competitive process. LGES had other options, and people were coming after them aggressively. We had the opportunity, but had to be creative in providing them with the type of investment package that helps them de-risk. In order for LGES to meet the demand for their EV batteries, there was going to be a set of years where there would be nothing but cash outlay and no revenue. We were grateful to get to a solution to secure that opportunity.
Q: The Michigan Strategic Fund offered an incentive package worth about $189m for LGES’s project. How will you ensure value for this public money?
A: Before there’s a disbursement, there are performance milestones that have to be achieved. Once that incentive is given, there’s a whole monitoring process to ensure that the company is delivering what they said they would. If they do not, and are unable to cure and correct after reasonable time, there’s a clawback. We take seriously the need to be responsible stewards of public dollars here in Michigan.
The reality of it is there are so many different things that go into a business and location decision. These include proximity to talent and customers, familiarity with geography and receptivity to foreign companies. Michigan has done this for a generation and I think that global familiarity was very comforting to LGES.
Q: In February 2022, there was a six-day blockade on the Ambassador Bridge connecting Detroit with Windsor in Canada. How can economic developers address supply chain bottlenecks like this?
A: The Ambassador Bridge that connects Detroit to Windsor, is the most active commercial border crossing in North America. When there was a blockade on the Canadian side, we saw the disproportionate impact of that, including the idling of production facilities which couldn’t get parts. But due to Michigan’s proximity, we were able to mitigate the impact a little bit more than folks further away from Canada.
Economic developers should try to control those things that are within their control; leverage relationships with elected officials and others. Part of our job is to be a coach, an educator and a polite agitator for change. In that particular situation, our governor, our elected officials at the state level and our federal delegation were absolutely locked in. They understood the critical importance of the bridge to our companies and employment.
Q: Can economic developers do anything to assist their local auto companies sourcing the materials they need, such as battery grade metals?
A: It is not fully within our ambit to control these things. One of Michigan’s important teammates in economic development is our research community. Research by one of our great universities focused on material sciences or recycling of batteries, as well as the technologies that spin out from that research, allows us to potentially become much more competitive from a sourcing perspective.
Quentin Messer Jr. is the CEO of Michigan Economic Development Corporation, an agency which promotes local business and economic activity across the Midwestern state.