SK Innovation starts constructing battery plant, $1.7B bet on Georgia

The Sun Belt continues to grow as a hub of automotive production. But the plant also will come with a price — with tax credits and other incentives likely to rise into the tens of millions of dollars or more, though the state did not immediately provide SK’s incentive agreement.

SK said the plant will initially supply batteries for Volkswagen electric vehicles to be made in Chattanooga. The plant — to rise along I-85 in Commerce, about 65 miles northeast of downtown Atlanta — will have a production capacity of 10 gigawatts, a measurement that denotes the total power capacity of the batteries expected to be produced each year.

The site can accommodate a facility to produce 50 gigawatts worth of batteries, or five times the production of the project’s first two phases, a company official said.

“Volkswagen is doing business in Tennessee; Alabama is home to companies like (Mercedes-Benz parent company) Daimler and Hyundai,” Jun Kim, president and CEO of SK Innovation, said Monday. “South Carolina also has facilities for Daimler, Volvo and BMW; and there is Kia Motor Co. in Georgia as well. Slightly up north, there are other companies like Ford. This is where the demand is concentrated.”

Gov. Brian Kemp hailed the ground breaking, saying the factory will create jobs in northeast Georgia that will keep locals in their communities.

“It’s not only an exciting day for all of us here, but it’s an exciting day for all hardworking Georgians out there, for the opportunities they’ll see in the future,” he said.

SK announced its planned factory in November, during the closing weeks of former Gov. Nathan Deal's second term.

Georgia lost its domestic automotive plants when Ford closed its Hapeville assembly plant in 2006 and General Motors shuttered its Doraville factory in 2008. But in 2009, Kia helped fill the hole, opening a $1.2 billion factory in West Point, where the company now makes Sorento and Telluride SUVs and Optima sedans.

The state also has landed many auto parts suppliers as companies seek to gain a supply chain and production foothold in the world’s second-largest automotive market and to temper the ups and downs of global trade.

Southern rivals, including South Carolina, Tennessee and Alabama, boast more automotive manufacturing centers. But Georgia is the North American headquarters for luxury brands Porsche and Mercedes-Benz.

More than 27,800 Georgians work in the automotive industry, according to the state Department of Economic Development.

“From an economic development standpoint, we care about the number of jobs created and the compensation these jobs have. And so, it doesn’t have to be the final product for it to be a major win,” said Roger Tutterow, an economist at Kennesaw State University. “Even if the batteries produced here end up leaving Georgia and go into final production (of vehicles) in surrounding states, it’s really somewhat irrelevant in terms of how meaningful it is for the Georgia economy.”

Jobs in manufacturing tend to beget others, as manufacturers require vendors nearby. The jobs also tend to lift people in different socioeconomic strata, Tutterow said.

More than 17 million new cars and trucks were sold in the U.S. in 2018, but only about 2 percent were EVs, said Matthew DeLorenzo, senior managing editor of automotive website Kelley Blue Book. Still, automakers are pushing aggressive plans to electrify their fleets to meet fuel economy and emissions standards in the U.S., and strict EV mandates in China and the European Union.

SK customer Volkswagen Group announced a $50 billion global EV investment program last year, with Chattanooga as its North American manufacturing center.

Regulatory considerations are driving the battery demand more than consumer preferences, DeLorenzo said. Costs to make EVs remain higher than conventional gas vehicles, though EV prices are coming down.

“Until that cost curve is bent down substantially, I don’t see natural demand matching what the manufacturers are gearing up to produce,” he said.

Still, if manufacturers can deliver cost-competitive EVs that become popular, “those (investments) will likely pay off,” DeLorenzo said.

Kim said, by 2030, he expects about one-third of new car sales in the U.S. to be electric.

“I am confident that Georgia will be the center of the battery industry for electric vehicles in the world,” SK Group Executive Vice Chairman Jaewon Chey said. Representatives of automakers including BMW, Ford and Volkswagen attended Tuesday’s event.

The announcement and SK’s commencement of construction come as the United States under President Donald Trump has enacted tariffs on foreign automobiles and vehicle components.

The Trump administration has generally tried to push foreign companies to do more of their business in the United States and for foreign countries to buy more U.S. goods. The U.S. is negotiating trade deals with China and an overhaul of the North American Free Trade Agreement between the U.S., Canada and Mexico.

The results have been decidedly mixed.

The trade deficit with China, for instance, a key yardstick Trump has used to measure the fairness of global commerce, has grown in China’s favor to record levels — the exact opposite effect as intended, but as many economists predicted.

But in a sign of the importance of the SK facility, U.S. Secretary of Commerce Wilbur Ross attended Tuesday’s ground breaking. He said the project “is evidence that our plan to make the United States the best place in the world to invest is working.”

South Korea is the United States’ sixth-biggest trading partner, with bilateral trade in 2018 at $131 billion, which Ross said was the highest ever. Korean companies have “at least 75 facilities” in Georgia, employing more than 10,000 in Georgia, Ross said.

Asked in an interview whether U.S. trade policies under Trump motivated the decision to build a U.S. factory, Kim said that the driving factors were primarily the need for automakers to source batteries within the U.S. and automakers’ push to electrify their fleets.