With Scout Motors’ $2 billion investment in a plant in Blythewood, just north of Columbia, the Midlands of South Carolina is poised on the cutting edge of a transformative automotive cluster as American drivers turn to electric vehicles.

The future is electric, Doug Woodward, professor of economics and director of the Division of Research at the Darla Moore School of Business at the University of South Carolina, told those gathered on Dec. 5, 2023, for the 43rd Annual Economic Outlook Conference presented by the school.

The 200 participants, both in person and online, also heard the economic outlook forecast for 2024 as well as a panel discussion on the coming infrastructure expansion in South Carolina and its role in maintaining long-run economic competitiveness.

In providing his 2024 economic forecast, Joseph Von Nessen, Ph.D., a research economist in the Moore School, said South Carolina should see continued economic growth although at a slower rate as rising interest rates and high inflation continue to impact the economy. But while high inflation remains a threat, the odds of a recession have gone down, Von Nessen said.

Much of the coming economic growth in the Midlands is being spurred by Scout Motors. Scout, an American subsidiary of Volkswagen, is investing $2 billion in a 1,100-acre electric vehicle or EV plant and plans to create 4,000 jobs and produce up to 200,000 vehicles a year. Production of the first two models, a small SUV and a pickup truck, is expected to begin in late 2026.

As work begins on the manufacturing site off Interstate 77, Scout’s impact in the area is already being felt. In November, Scout opened an office at Segra Park in the BullStreet District, occupying the third floor of the First Base Building, with room for up to 175 employees.

Woodward likened Scout’s investment in the Midlands to BMW’s investment 30 years ago in Greer and its fallout in the Upstate.

“They initially only promised 1,800 jobs and are now up over 10,000 jobs,” Woodward said. Those are direct jobs in the BMW operations, but a study earlier this year by Von Nessen found that the BMW plant supports, directly and indirectly, 42,935 jobs across the state. “When you get something good going like that, it really just beats on itself and grows,” Woodward said.

Like BMW in the Upstate, Woodward believes strongly that Scout Motors can become for the Midlands, or Central South Carolina as he calls the area, the epicenter of a South Carolina electric vehicle cluster, a subset of the state’s automotive cluster. “There are five electric vehicle plants in South Carolina. So, we see we have a cluster of EVs, not just in the auto sector, but of EVs in South Carolina,” Woodward said. “And we have one of the major ones now coming in with the Scout investment.”

On Dec. 12, electric vehicle battery technology company AESC announced the expansion of its state-of-the-art battery cell facility in Florence County. The $810 million investment will create 450 new jobs. Expected to be complete by 2026, this new commitment follows AESC’s initial announcement in December 2022 of $810 million and 1,170 jobs, resulting in a total investment of $1.62 billion and 1,620 new jobs.

Gov. Henry McMaster has helped push South Carolina’s efforts to build the EV cluster with an executive order signed in October creating the SC EV Economic Development Initiative. And the S.C. Department of Commerce has launched a virtual electric vehicle industry hub to aid the growing SC EV industry.

Development of an electric vehicle cluster will be driven by demand, Woodward said. And “I am confident people are going to be buying cars in the future, and they’re going to be buying electric cars.” The EV market globally is massive. “When they look at the sales forecast for the future, we’re talking about $8 trillion, almost $9 trillion. And by 2050, $57 trillion to $88 trillion of sales are projected in the EV market,” he added.

But EV sales have been slow to take off, Woodward pointed out. They are still only 8 percent of the overall market, he said, “and it’s kind of been stagnant a little bit. Consumers are not necessarily rushing out to buy EVs with a couple of notable exceptions, Tesla being one of those.”

On the positive side, Woodward said consumers do see EVs as cutting-edge technology. People like the experience of driving an EV, he said, which is quite different than driving a gas-powered car.

“And the more people get used to it and have that experience, they’re going buy into this,” he said.

The safety of the vehicles is also a plus, Woodward said. “It’s safe because of all the electronics and all of the connections that it has to the web, and constantly updating the software, both in terms of navigation and everything that’s going on within the engine.”

On the minus side, however, are issues with battery range and charging inconvenience. Woodward thinks battery range – how far an EV can travel without recharging -- is what is holding a lot of people back from buying an EV.  But he believes that issue will start to be resolved, with charging stations being placed all around the country. “People are going to gravitate towards EVs when it becomes far less inconvenient. But that’s holding the consumer back right now,” he said.

Woodward noted that a lot of innovation is taking place in EV battery production, and some of that will happen in South Carolina, which already has several battery producers. State legislators recently provided $50 million in added incentives for the Envision AESC electric vehicle battery plant to be built in Florence.

Much of the U.S. investments in global EV and battery companies has come in the wake of the Inflation Reduction Act, which incentivizes production of vehicles and batteries in the U.S. The high price of electric vehicles is also a concern for consumers. But Woodward notes that a $7,500 federal tax credit is available for the purchase of EVs if manufactured in America. That is certainly favorable for vehicles made in South Carolina.

South Carolina provides multiple incentives to help companies establish manufacturing operations in the state, and Scout Motors is receiving incentives valued at $1.3 billion. As outlined by Woodward, they include:

$650 million in infrastructure

Construction of a new I-77 interchange

Road improvements to mitigate traffic problems

Construction of a railroad bridge over I-77

Water and sewer infrastructure

Wetlands mitigation.

$400 million grant

For onsite improvements determined by the company.

$16 million

To acquire property to connect to a main rail line.

$25 million

To build a training center by Midlands Technical College to train workers.

$200 million loan

For soil stabilization. To be repaid by Scout Motors with 5 percent interest.

Woodward noted that there has been some controversy over the amount of those incentives.

“Everybody gets concerned because they think we’re taking public money and we’re giving it to this private company. But that’s not exactly true,” he said.

Most of the incentives have to do with infrastructure. “A lot of the investment that this state is making isn’t giving the company money directly out of the taxpayer’s pocket and putting it into the pockets of the shareholders of these companies,” he said.

“It’s actually building infrastructure. And that is an asset for our region that’s going to stay there. Whether or not this investment reaches its full potential, we’re going to have this much stronger infrastructure that is $650 million out of this overall whopping $1.3 billion of incentives,” Woodward said.

Every state offers incentives. But what is different about South Carolina, and which helped Scout Motors choose Blythewood out of 74 possible sites, is what Woodward calls the state’s “flexible competitive environment.”

That is something that BMW talks about a lot, Woodward said. One of the reasons South Carolina has a flexible, competitive environment, he said, is because the state has the lowest unionization rate in the country, and one of the lowest in the world. “That is important from a competitive point of view because it allows for agility and flexibility.”

But it’s not just about when unions go out on strike, like they did at several large automakers recently, Woodward said, “but it’s also about the work rules that they impose. It’s very difficult in a union environment to try out new production processes and new production techniques and innovate on the production line.”

Robotics, for example, may be resisted by unions because they see that as a threat to their jobs. “That’s not something you’re going to find in South Carolina. They’re going to be able to put in a very advanced plant, and management is going to be able to decide what is best and what is most competitive for them,” Woodward said.

Two issues that the state needs to grapple with as it seeks to build the EV cluster, Woodward said, are the supply chain and labor availability.

The state has got to work on the supply side issues, and that is going to be a challenge, according to Woodward.  “For all American EVs, the key to falling prices is going to be battery costs,” he said. But the big problem right now is that China dominates with about 80 percent of the world’s battery production right now. “They have all the materials; they have the technologies.”

To be eligible for the full subsidies available under the federal inflation Reduction Act, including the $7,500 buyer’s incentive, EVs made in America can’t include battery components made in China, Woodward said.

“We’re going to have to find a way to make this supply chain successful and competitive from a cost point of view.,” Woodward said.

Fortunately, several battery and battery component companies are setting up shop in South Carolina, and the challenge is to eliminate China-sourced materials.

The other big challenge is labor. With an unemployment rate of less than 3 percent, where are the workers going to come from? And while a lot of people continue to move to South Carolina, most of those are senior citizens.

South Carolina, and Columbia in particular, needs to do a better job of attracting millennials, those aged 27-42, the prime age for workers.

Woodward pointed out that while in 2022, 14,000 millennials did move to Columbia, 100,000 moved to Austin, Texas, where the new Tesla EV truck is assembled.

The main reason is they are moving to Austin – “and I talk to my students about that,” Woodward said – has to do with quality of life.

“They want to live there. So that metro region is able to attract millennials. Our challenge is to be able to do that. Maybe not to that extent, we don’t have to be Austin. We just have to move in that direction from where we are right now,” he said.

One plus that the region does offer to large manufacturing employers, like Scout and others, and for young people looking for jobs at those companies, are the multiple training and educational programs available through Midlands Technical College and the University of South Carolina, Woodward said.

All of this can help build an EV cluster in Central South Carolina. “We know that in the future, people are not only going to continue to drive cars, but they’re going to be driving electric cars. And we’re going to be making them here in the Midlands,” Woodward said.