inflation /

Automaker Claims New EV Plants Cannot Open in U.S. Because of Wage Inflation

CEO Says Company Is Unable to Compete With McDonald's, Whose Workers Make $20 to $25 Per Hour

Amid the worldwide push for fully electric vehicle fleets by the end of 2030, car manufacturers are accelerating the assembly of EVs. One company, however, has just announced it will not be moving its production to the U.S. because of inflation-induced wage hikes.

Subaru says that inflation is so palpable in the U.S. the automaker’s Indiana assembly plant is having difficulty competing with McDonalds on worker wages.

“In Indiana, part-time workers at McDonald’s earn $20 to $25 per hour, which is in competition with what temporary workers make at our plant,” Subaru CEO Tomomi Nakamura said on Nov. 2, at the company’s quarterly meeting. “If we were to build a new plant, it would be very difficult to hire new people for that. Labor costs are rising now. It is quite challenging for us to secure workers for our Indiana plant, including those of suppliers.”

Nakamura also said that it is too difficult to try and comply with new federal guidelines for the federal $7,500 EV tax credit.

Throughout 2022, the U.S. has experienced persistent historic inflation, with year-over-year inflation hovering above 8 percent for months. Additionally, job vacancy rates are at historic highs, adding to the potential for wage inflation.

“With such a tight labor market and elevated inflation environment, workers are likely to demand more pay to retain their purchasing power,” according to a recent publication by the Federal Reserve Bank of San Francisco.

“Inflation in the United States has reached levels not seen in decades, which can have implications for how wages are set. When negotiating contracts, workers may demand higher compensation to make up for their current loss of purchasing power and for expected future losses,” the Fed says. “In an environment with elevated inflation, even when longer-term inflation expectations remain well anchored and workers expect inflation to eventually be brought down, their shorter-term views may become more relevant for wage demands.”

Subaru says that the company currently has roughly 48,000 backorders in the U.S. and sees the potential for sales to increase.

“Basically, we think there will be strong demand for our cars,” Nakamura said.  “But our U.S. retailers told me they feel there could be a recession, so we will be watching the situation closely.”

Other manufacturers aren’t as dovish on their plans to expand EV production within the U.S.

Last month, BMW announced it is planning to invest nearly $2 billion in a South Carolina facility to manufacture electric vehicles and batteries.

The company has already invested $12 billion and the plant currently employs 11,000 people.

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