Matt Rolf Attorney LLC

Electric Cars in Ohio: Continuing Development Patterns of the Past

by Matt Rolf - October 2022

-Any attempt to think about ecology-based land use reform in Ohio must consider existing state and federal economic development policies, and how the electric car fits into that system.

No “clean” transportation technology generates excitement like battery powered electric vehicles. They look amazing, have no tail pipe emissions and reduce the greenhouse gasses causing climate change. In just one purchase, the electric car promises a lawyer can reduce their impact on the climate with no real change in the life style they are accustomed to.

Electric cars also fit neatly into Ohio’s long history of industrial development incentives given to traditional, oil-powered automakers. These policies come with a tradeoff: battery electric vehicles don’t offer an opportunity to reckon with the other environmental impacts of cars. Ohio enacted decades of land use policies to support the movement of cars rather than people through the state, resulting in sprawl, abandoned cities, and pollution. Any attempt to think about ecology-based land use reform in Ohio must consider existing state and federal economic development policies, and how the electric car fits into that system.

Ohio’s Automotive History

Ohio and Cleveland owe much economic success to the automotive industry. Northeast Ohio’s location, raw materials base, nascent energy and chemical industry, and advanced commercial banking sector enabled it to participate heavily in the industrializing automotive transportation sector of the early 20th century. After Detroit, Ohio was the second star in a binary car production system consolidated by General Motors, Ford, and the Chrysler Group (now known as Stellantis North America).

After 1945, Ohio worked expeditiously to dismantle its passenger railroads and public transit resources, and to build a large number of highways. All these things were done in service of the automobile. The process took years, but by the mid-1980’s the last passenger train to Youngstown had left Terminal Tower. The road building industry benefited from the unending work of paving over farm fields, as did the real estate sector, with new lands open for development every day. The Ohio Statehouse and the Ohio Department of Transportation are currently on extremely friendly terms with these groups, as well as with the automakers.

While this policy regime made money, it started to founder about 45 years ago. In an effort to shed labor costs, and struggling to modernize their business processes, around 1980 the “Big Three” domestic auto manufacturers began spinning off design and production units for individual parts into a sprawling, independent supply chain. The smaller independent suppliers became more vulnerable to economic downturns like the one in 2011.

For perspective, in 1967, Ohio’s manufacturing sector employed almost 1.4 million people. Due to automation, foreign trade, and domestic competition, that number has declined to around 680,000 workers today. In 1990, almost 200,000 people were employed in the Transportation Equipment Manufacturing sector in Ohio; today that number is around 115,000. At its peak, General Motors had over 60,000 employees in Ohio; now it employs just 3,800 people in the state.

The stagnation of manufacturing left Ohio with the worst of all worlds. Large swaths of central cities across the state were abandoned by the flight to the suburbs allowed by highways, and no one else moved in. Closed factories left polluted dead zones without the tax base to clean up the sites. Most Ohio towns now have a massive parking lot at the bypass by the city edge for the local big-box or dollar store, while most town centers lack sufficient foot traffic for retail activity. Northeast Ohio suffers from stark segregation. Our public transit authorities struggle to attract passengers. New highways, like the Portsmouth by-pass, or Route 16 past Frazeysburg, are hardly justifiable, but are built anyway.

Ohio Economic Development Policy

Ohio mitigated manufacturing job losses as much as it could by developing an economic development policy based on subsidizing and supporting automotive manufacturing firms. One of the shrewdest plays was when Governor James Rhodes cultivated a relationship with Honda Motor Company in 1977. Honda’s decision to site factories in central Ohio has resulted in happy, profitable 45-year presence in the state and over 15,000 total jobs on an ongoing basis.

In 1997 Ohio subsidized then-Daimler-Chrysler by $232 million to refurbish its Jeep plant in Toledo and keep 5,500 jobs. Fortuitously, in the following 20 years Jeep developed strong products and became a standout brand. The factory has seen numerous rounds of private reinvestment in the years following Ohio’s large subsidy. The Toledo Complex now houses Jeep production lines with multiple shifts and independent supplier factory space.

Ohio failed to lure other foreign manufacturers such as Hyundai, Volvo, BMW, and Mercedes-Benz. These manufacturers chose to locate factories in southern states with little history of organized labor. Another unhappy tale is GM’s closure of the Lordstown assembly plant. Lordstown was shuttered as the domestic automakers abandoned making small cars in favor of SUVs before COVID-19 hit.

Enter Tesla

Today the Big Three control almost 40% of the US auto market. A fourth domestic auto manufacturer, Tesla, controls just over 2% of the market by building battery powered electric cars in a former GM factory in California. As of this writing, Tesla’s market cap is more than 5 times the size of the Big Three automakers combined. Why?

Climate change has driven renewed interest in reducing carbon emissions, a problem electric cars aspire to solve. Democratic-controlled governments at the federal level have sought to subsidize battery-electric development since 2008 for this reason. Battery electric cars coupled to a power grid running on renewable energy have the potential to reduce transportation sector emissions to a manageable level for the planet, without significant sacrifices or tradeoffs from the body politic.

From the investor perspective, a company like Tesla run in the Silicon Valley manner promises to charge inflated prices for its products, do away with organized labor, achieve efficiencies with automation or a low-paid overseas workforce, and absorb perpetual government subsides as part of the business plan. When combined with speculative new technology to enable the monetization of driverless or autonomous car trips, the prospect for profit becomes immense.

The Industry and Government Incentives Adjust

Traditional auto makers want to leverage Tesla’s business model for themselves. GM and LG Chem are building a new, non-union battery cell plant under the name Ultium LLC directly adjacent to the shuttered Lordstown assembly plant. Ford Motor Company will assemble electric cars in Lorain. Stellantis and Samsung are building a battery plant in Indiana, while Toledo frets about whether electric car production will ever come to the city. Ohio has invested substantial sums in “smart connectivity” studies and proving grounds for driverless or autonomous cars.

These efforts come backed by large new government subsidies. The Infrastructure Investment and Jobs Act included over $3 billion of public money to support domestic battery supply chains. The Inflation Reduction Act extends a tax credit benefit for purchasers of electric vehicles, but restricts the credit to certain price points. Starting in 2023, the tax credit doesn’t apply to cars with an MSRP over $55,000, or SUVs and light trucks costing over $80,000. As a result, consumers will be more limited in their electric vehicle choices, and will face potential tradeoffs in safety or utility. Individuals earning over $150,000 are also means-tested out. In hopes of spurring more domestic manufacturing, the tax credit will only be available to vehicles with battery materials from certain countries and certain components manufactured in North America. Used cars will benefit from a $4,000 credit upon purchase.

Finally, auto factories shutting down due to COVID-based microchip shortages from China in 2021 spurred a major change in the nation’s industrial policy. In 2022 the federal government passed a law to subsidize domestic micro-processor manufacturing by $52 billion. These funds will benefit chip factory owners like Intel, and fabless shops such as Qualcomm and AMD. As a direct result of this public investment, Intel announced plans to built a chip fabrication plant outside Columbus Ohio. The state government has announced it will throw in $2 billion in up-front subsidies to Intel on top of what the federal government is providing.

With this massive public investment, Ohio’s manufacturing economy may finally look modern, with a high tech sheen over existing traditional firms.

The Limitations of the Car Economy

These policy choices come with limitations. Both Ohio and the federal government are betting on a transportation mono-culture of automotive mobility, starting with economic development incentives and ending with road construction. At a time when much ecological literature suggests building denser places catering to pedestrian mobility, bicycle infrastructure, and efficient passenger rail opportunities, Ohio is doubling down on policies of the past. By way of example, the Intel factory, the centerpiece of the next generation of industry, is being built in farm fields far from urban public transit infrastructure.

Any attempt to make Ohio’s land use more sustainable, efficient and environmentally friendly must accept that electric cars are only a small part of the solution. To foster real change, we must reform our economic development policies to account for the auto industry’s externalities.