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Youngkin prevented a battery factory and an entire economic sector from coming to Va.

Auto - Show Biz clinic originally published at Auto - Show Biz clinic

Youngkin prevented a battery factory and an entire economic sector from coming to Va.

By Michael O’Grady

Recently, Gov. Glenn Youngkin blocked a deal with Ford Motor Company and Contemporary Amperex Technology Limited (CATL) to bring car battery research and manufacturing to Southside Virginia, an area desperately needing this type of investment. Youngkin, who was formerly a Carlyle Group manager, has now been promoted to champion Virginia workforce development. Youngkin’s excuse for terminating the deal, that he wanted to limit Chinese Communist Party influence on Virginia, is absurd. He was responsible for investments of at least $8 billion in Chinese companies while working at Carlyle, which is located in nearby Washington, D.C. . But what is most concerning is the blindness of an experienced global investor who should have known better. Youngkin didn’t just endanger one deal for a factory, or even a piece of the car battery sector. Youngkin severely hampered the potential for a new Virginia manufacturing sector. This is based on two factors. First, I have a deep understanding of the dynamics of agglomeration as well as cluster economies. Any Harvard MBA graduate should be familiar with them. The second reason is the current and future market dynamics of both the battery industry and others relying on it for their own products.The idea of an

agglomeration economy

is intrinsic: Competing firms will incubate near each other to take advantage of spill-overs. They co-develop to steal each other’s ideas or employees. Although it sounds unseemly, this has resulted in wider adoption of new technologies, which has benefited both workers as well as consumers. Examples include movies (Hollywood) or automobiles (Detroit). Research has shown most modern manufacturing expansion in the U.S. can be explained by agglomeration.Business clustering is more complex but also based on geography. Interrelated organizations form business clusters in

. This is due to shared interests or relationships. Clusters can be made up of private businesses, financiers or government agencies, as well as nonprofits and educational institutions. These include those involved in product development as well as providers of similar or complementary goods and services. Many car and appliance manufacturers are located in the Midwest, for example, because they have the same types of workers and parts and can thrive in the same infrastructure. Clusters increase performance, innovation, and resilience for all who are involved. CATL isn’t just looking for more production of existing batteries. Ford is likely to be developing the next generation lithium iron phosphate technology (

). LFP is essential to the sustainable future consumer goods, transportation and renewable energy. The Inflation Reduction Act also mandates and encourages a U.S. shiftto newer battery technologies. Globally, demand will rise 20% per year for at least a decade. While most of the current production is Asia-centric, this is changing for a variety of reasons. The key to Chinese dominance in Africa is its control of cobalt production, which is concentrated in the Democratic Republic of Congo. There is no way around it in the short-term. The U.S. has two options: either partner with Chinese companies for domestic manufacturing in the U.S. or rely entirely on China for the final product (i.e. import batteries from China). There are no feasible alternatives for at least a decade.However, cobalt exploration and extraction are accelerating in

Canada and the U.S . These deposits are of a higher quality than those found in Africa and therefore more desirable. Due to transportation costs and the COVID reset the refinement of cobalt is close to where it is mined.Many companies are interested in expanding to the U.S

. However, no state has been chosen as the preferred destination. Virginia is a great place for battery research and manufacturing. These include extensive transportation networks, a skilled manufacturing workforce, and multiple research universities that offer strong engineering programs. Southside Virginia is in deep trouble after decades of decline. First, Virginia’s cotton and tobacco industries that once powered the economy have collapsed. Globalization has led to the departure of furniture, paper, and textile manufacturers. Virginia lost 140,000 manufacturing jobs

over the past 25 years. A single plant could create thousands of jobs for a struggling workforce by being constructed and operated. This in turn would create jobs in complementary and support services.Ford and CATL signed a long-term memorandum of understanding last year to cooperate on existing and future product lines for the foreseeable future. LFP technology is still relatively new, especially when compared to lithium ion technology which has been around since the first Priuses. Ford and CATL have made investments in research capacity within the company, but Ford also indicated that it is interested

in partnershipswith research universities to ensure the development of these technologies. Maybe Ford and CATL would like to partner with Virginia universities to develop their research pipelines and workforce, . This is similar to what Amazon did. For agglomeration purposes, other battery manufacturers, including those from China, would likely move to Virginia. Manufacturers would eventually expand products to include batteries for electronics and renewable energy storage using Virginia-developed LFP technology.Because of its transportation networks, Virginia could attract upstream manufacturers eager to make products for export to Europe and other parts of North America. This is because South Carolina did a similar turnaround in 2009

when it brought a Boeing factory to Charleston. Many other investors, including Carlyle, followed Boeing there and Charleston is now an advanced manufacturing export hub. This reversed a decline in South Carolina’s economy similar to Virginia’s Southside after textile and furniture producers moved on.
Youngkin’s economic jingoism policy cannot win in a macroeconomy with global supply chains, networks, and even business clusters.

Ancient Chinese general Sun Tzu, a military strategist, said that “Every battle is won and lost before it is ever fought.” The United States has been obsessed with fossil fuels for 30 years. But China patiently built a near-vertical monopoly on renewable energy component manufacturing. Youngkin’s economic jingoism is not sustainable in a macroeconomy with global supply chains, networks, and business clusters. It will take decades to decouple our economy and rebuild internal capacity. Recklessly cancelling Chinese business partnerships will only hinder this. Youngkin sent a message that manufacturers had to make a choice between the global economy and Virginia. In preparing for his political future, Youngkin is preparing Virginia for defeat.

Michael O’Grady is a PhD candidate in public policy and administration at Virginia Commonwealth University and a research economist for VCU’s Center for Urban and Regional Analysis. His research focuses on community development programs. He has previously worked as a legislative assistant and as a research analyst at Arlington Economic Development. His views do not necessarily reflect those of his employers.

Auto - Show Biz clinic originally published at Auto - Show Biz clinic

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