LG Energy Solution has announced a $5.5 billion battery manufacturing facility near Phoenix, while Taiwan Semiconductor Manufacturing Co. (TSMC) is investing $40 billion to open the company's second chip plant in Arizona.
"We always had a technology-rich workforce, a lot of engineers here because of Raytheon, Honeywell, General Dynamics, Northrop Grumman, Lockheed Martin," said Steve Zylstra, CEO of the Arizona Technology Council, a statewide trade association for science and technology companies. He was alluding to Arizona's large presence in the aerospace and defense sectors.
"But the preponderance of the growth here in the tech manufacturing sector has been in the last five to 10 years." (Related: Honda, LG to build $4.4 billion electric vehicle battery plant in the US.)
Zylstra also noted that the Grand Canyon State has a very light regulatory environment and the best research and development tax credit in the United States. The state also has a lot of available land, which a lot of places don't have.
"We have five electric vehicle manufacturers here, four battery manufacturers here and two lithium-ion battery recycling firms," he said, adding their advantage of being at the border of Mexico. The neighboring nation has a booming automotive industry, which makes Texas another potential hub for makers of EVs, batteries and semiconductors.
John Boyd, principal for The Boyd Co. Inc., said parts of the U.S. and Mexico are benefiting from unprecedented interest in reshoring and nearshoring of manufacturing because of shifting supply chain strategies.
"Nearshoring is a major focus today for advanced manufacturers, and when we tend to look at advanced manufacturing site selection projects, whether it be for battery production or semiconductors, we look for corridors," Boyd said.
He cited State Highway 130 corridor in Texas as an example, as it emerged as a premier place for advanced manufacturing and brought in companies like Navistar, Samsung, Apple and Tesla's gigafactory in Austin. It is near Monterrey, Mexico, which has become a global hub for advanced manufacturing. Boyd said the supply chain from Monterrey to Central Texas is about a seven-hour drive, paving the way for real economic development opportunities.
Companies are trying to escape states with high corporate tax rates like California
When Arizona officials first began negotiating with TSMC to build a plant in the Phoenix area in 2021, they were competing with at least several other U.S. states that were trying to lure the chipmaker. LG Energy Solution also chose Arizona for its battery plant after a national search.
"Texas is our primary competitor these days. They have some of the same attributes as Arizona," Zylstra said. "Texas has the benefit of not having any corporate income tax and that's because of oil and gas. Nevada has the same thing, and that's because of gambling."
Zylstra noted that many companies are now moving from California to Arizona and Texas.
"These companies are trying to exit the other end of the spectrum, over eight percent in corporate tax rates, unbelievable regulatory burdens on companies, the high cost of real estate, the high cost of doing business. They're all trying to escape that and they're generally coming to Arizona and Texas," he said.
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