Anxiety often goes hand-in-hand with change—and the auto industry’s shift from the internal-combustion engine (ICE) to battery-powered vehicles is no different.
The EV transition has stoked fears of mass job losses and plant closures, especially in regions like the Midwest, where many local economies are tied closely to the auto industry (that’s one reason why the UAW is working to organize nonunion auto plants).
If you’ve shared these concerns, the Chicago Fed has some good news. New research from analysts there reached what they describe as a surprising conclusion: At least until the end of the decade, North America’s auto production footprint isn’t expected to change much at all.
That’s because automakers are converting existing factories to make EVs. In fact, “very few” final assembly plants are slated to open or close in the next several years, according to the analysis. That’s despite the fact that North America’s production mix is forecast to change dramatically: The continent is expected to produce 6 million fewer ICE vehicles and upward of 6 million more battery-electric vehicles by the end of 2029, according to S&P Global Mobility data cited in the report.
“Are carmakers shutting down existing light-vehicle assembly plants and building new ones? It turns out they’re not doing that,” Thomas Klier, a senior economist and economic advisor at the Chicago Fed and a co-author of the report, told Tech Brew. “For the vast majority, the industry is accommodating the pretty remarkable production mix that we’re expecting by reconfiguring existing assembly facilities.”
This outcome wasn’t a foregone conclusion; you need only visit a former auto factory town to see that automakers have been willing to pull the plug before—decisions that can have devastating consequences for local communities and economies.
The matter was important to examine, Klier explained, because the region covered by the Chicago Fed (the entirety of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin) historically has been home to a larger portion of auto-industry activity than any other. Understanding the changes in an important industry in the district helps inform monetary policy.
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An alternative outcome could have been for a larger number of startups to dominate the industry and build brand-new plants on sites that had never been used for auto production before, Klier said. Instead, legacy automakers and startups alike have largely repurposed existing plants—from Tesla using a former GM plant in California to GM reopening a former ICE plant in Detroit to build vehicles like the electric Hummer. Klier noted, for example, the significant change in the industry’s production footprint when foreign automakers like Toyota and Honda set up plants in the US.
The analysis also found that battery plants “are expected to align remarkably closely with the distribution of final assembly plants,” similar to engine plants today. Furthermore, researchers don’t expect many engine plants to close by 2029, thanks to an increase in hybrid vehicle production.
They expect battery imports to drop significantly in the coming years as the US brings more domestic production capacity online, spurred by incentives in the Inflation Reduction Act, and as the US tries to reduce reliance on trade with China.
But just because EV and battery plants will likely occupy very similar geographies to ICE and engine plants doesn’t mean there won’t be disruptions.
“If your town has a transmission plant or an engine plant that’s going to end up shutting down in the next five years, that doesn’t mean that same town is going to get the battery plant,” Klier said. “That could be 50 miles away, and it is most likely going to be a greenfield facility, like almost all the battery plants have been.”