Due to High Labor Costs
With the United States planning to make a large-scale investment for more electric vehicles (EVs) on the road, South Korean EV battery manufacturers are in a dilemma in the U.S. EV market. This is because investing in advance in the fast-growing market is definitely advantageous, but there are some hurdles such as the United States-Mexico-Canada Agreement (USMCA) and high labor costs.
The Joe Biden administration recently announced that it would invest US$174 billion for EV R&D and infrastructure establishment. Specifically, it is planning to provide more EV subsidies and replace 50,000 public transportation vehicles and more than 20 percent of school buses with green cars.
The United States is one of the largest EV markets in the world. Despite the investment plan, EV battery manufacturers are still reluctant to invest more in the United States. At present, a total of four companies (LG Energy Solution, SK innovation, Panasonic and AESC) are running their EV battery manufacturing plants in the United States. Panasonic is the sole supplier for Tesla vehicles and AESC is the sole supplier for Nissan vehicles. Only LG Energy Solution and SK innovation have made large investments in the United States.
This has to do with the high labor costs in the market. According to the USMCA, which took effect in July last year, automobile manufacturing in the United States must be limited to workers who are paid at least US$16 per hour, those workers must account for 30 percent or more of the total production work, and the minimum ratio must be increased to 40 percent in the case of passenger car manufacturing and 45 percent in the case of pickup truck manufacturing in 2023.
U.S. manufacturing workers’ average wage is currently 300 percent to 400 percent of those of their Eastern European counterparts. As of October 2020, the average initial salaries of the high school graduate workers in Hungary, Poland and the United States were US$747.12, US$1,000 and US$3,345, respectively. This means a higher EV battery manufacturing cost in the United States.
In addition, Chinese EV battery manufacturers are refraining from investing in the United States due to the ongoing U.S.-China trade disputes. Only South Korean and Japanese companies can make an investment there as of now. However, Panasonic and Samsung SDI are rather conservative about doing so.