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Why did BMW decide to manufacture batteries in the USA?

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BMW recently announced a $1.7 billion investment to help prepare its giant Spartanburg plant in South Carolina to produce electric cars and SUVs. That amount included $700 million for the construction of a nearby battery manufacturing facility.

Spartanburg is BMW’s largest factory anywhere in the world. It employs 11,000 people and produces 40,000 SUVs a year, of which only 40% are sold in North America. The rest are exported to 120 countries.

It’s one of such announcements in recent months and years as automakers prepare to produce more electric vehicles. Mercedes, Hyundai, Honda and others have also announced battery plant construction projects in recent months. BMW’s announcement came after the Biden administration passed the Inflation Reduction Act, which limited tax incentives. to those with a largely US-based supply of batteries and raw materials for electric vehicles.

The rules only allow consumer tax credits for electric vehicles that meet increasingly stringent targets for US-based production of the vehicles themselves and their batteries. They also require US-sourced sources of battery raw materials and cap the cost of vehicles and buyers’ income. Buyers can get full tax credits only if they and the vehicles meet the requirements.

But BMW chairman Oliver Zipse said in an interview with CNN Business that such regulation had no bearing on BMW’s decision to relocate battery production to South Carolina. Simple logistics was a much more important factor.

“You’re not going to be able to fly a hundred-pound battery around the world or put it on a ship,” he said. “You’re not going to do that. You’re going to localize it anyway.”

Zipse said the IRA’s rules not only made American production unnecessary, but also risked negative repercussions for the American businesses they were designed to protect.

An IRA does not provide any benefits to vehicles, whatever “American made”, unless they are sold in the United States. More importantly, Zipse said, protectionist regulations that try to close the walls of American-made vehicles for American buyers could lead to retaliation and jeopardize its valuable export business.

“You can never make a regulation without looking at the results from other regulators,” he said. “And I’m just warning you that we’re getting a tit-for-tat ordinance.”

Simply, as a practical matter, it’s hard to wall off the automaker’s supply chains the way the IRA demands, Zipse said.

The assumption that you can promote a completely A to Z industry within a single region in the world in such a complex industry as the automobile industry is a false assumption.

Zipse also warned of the potential unintended consequences of regulations banning the sale of non-zero-emission vehicles beyond a certain date, such as in some US states and Europe. First, it could mean that overall industry sales will fall.

“We don’t believe this single drivetrain will make up the entire market of today’s size,” he said.

Zipse said many consumers won’t be able to have an EV charger at home. instead, they may decide to keep their petrol cars longer or buy used gas powered cars.

Some automakers, such as BMW rivals General Motors and Mercedes-Benz, are apparently not worried about the possibility of this reducing sales and have announced plans to go all-electric by a certain date. BMW never said announced to the public that it plans to produce only electric vehicles after a certain period of time.

Unlike some automakers, such as GM and Volkswagen, which make electric vehicles completely different from their petrol cars on different engineering platforms, BMW designs their vehicles to be produced as electric, plug-in hybrids or all-gasoline. BMW executives speak of this kind of flexibility to respond to market demands for different vehicle types.

Instead, he said, regulators should gradually introduce stricter emissions restrictions and leave it up to automakers how best to achieve these targets., as regulators have done in the past. To date, this approach has not stopped increasing global warming.

Zipse has insisted that BMW can manage whatever regulators decide.

“We can easily accelerate them,” Zipse said, prompting the growing regulatory demand for electric vehicles. “All of our factories are qualified to build EVs. We have a flexible approach.”