A massive corporate rethink is underway. Inflation in construction costs explains only a small portion of the spending boom.
By Wolf Richter for WOLF STREET.
Companies plowed $18.4 billion in April into the construction of manufacturing plants in the US, a seasonally adjusted annual rate of construction spending of a record $212 billion, according to the Census Bureau today. This was up by 140% to 200% from the range in 2015 through mid-2021,
The spike in factory-construction activity began in the second half of 2021. The CHIPS Act, signed into law in August 2022, seems to have turbocharged it, though the money hasn’t even started flowing yet.
Beyond semiconductors, a large number and a great variety of manufacturing plants have been announced over the past two years, and we’ll get to some that were announced just in recent weeks. They’re part of what the National Manufacturing Association has termed, “general reshoring.”
During the record year of 2023, spending on factory construction spiked by 71% from 2022, and by 138% from 2021, to $196 billion. And 2024 is on track to set a new record as the eyepopping boom continues.
This boom is a result of a massive corporate and government rethink after the supply-chain and transportation chaos during the pandemic, the increasingly edgy relationship between the US and China, the fundamentally scary dependence by US companies on production in China, and the nerve-racking dependence on semiconductor production in Taiwan.
Inflation explains only a small portion of the spending boom.
The Producer Price Index for construction costs of nonresidential buildings exploded in mid-2021 through 2022, but then hit a ceiling and has remained roughly unchanged at this sky-high level since December 2022 (red in the chart below).
From September 2021 through December 2022, the index spiked by 28%. Over the same period, investment in factory construction jumped by 56%. Since then, the PPI has remained flat to down, while investment in factory construction jumped by another 64%.
On a year-over-year basis, the PPI for nonresidential construction has been negative for the first four months of 2024 (green):
Construction costs are just part of the investment in a factory.
In general, today’s largely automated manufacturing processes require costly equipment that can dwarf the construction costs of the building. But the costs of the manufacturing equipment and related costs are not included in the data of construction spending here.
In terms of the semiconductor industry: the total cost of a chip plant might reach $20 billion, but the construction costs are only a smallish part of it. The costs of the equipment and the costs of getting it all to operate eat up a far bigger part of the investment.
Massive investments in semiconductor plants.
The first grants and loans under the CHIPS act were awarded only in March 2024, spearheaded by the announcement that Intel would get up to $23 billion in grants and loans, plus up to $25 billion in tax credits. This was followed by announcements that TSMC (the world’s largest contract chip maker), Samsung, and Micron each would get over $6 billion in grants, and that Global Foundries would get $1.5 billion in grants. Smaller announcements followed.
But the deals will take time to finalize, and disbursement will be spread out over phases.
The total costs of building a fab, to equip it, and to get it up and running are huge. TSMC has announced over $65 billion in investments, including $40 billion for two fabs that are now under construction near Phoenix. Despite assorted delays and issues, TSMC said that its first fab “is on track to begin production leveraging 4nm technology” in the first half of 2025.
Intel has rolled out $100 billion in investment plans, including $43 billion for facilities in Ohio, New Mexico, Oregon, and Arizona. Texas Instruments is investing $30 billion in Texas. Samsung is investing about $45 billion in Texas. Micron is talking about $125 billion, with new plants in New York and Idaho. These numbers are gigantic, but only a smallish part of it all will be construction costs of the building and will be tracked here.
New factories beyond semiconductors.
Chip plants are written all over this boom in factory construction because the plans are huge and costly, heavily government subsidized, and get all the publicity. But there’s more going on.
Here is a sampling of announcements beyond semiconductors over just the past few weeks:
Toyota announced a $1.4-billion investment in its Princeton, Indiana, facility to assemble its new three-row battery electric SUV, bringing total investment in Indiana to $8 billion. “This investment will not only provide plant infrastructure to build the all-new BEV, it will add a new battery pack assembly line using lithium-ion batteries supplied by Toyota Battery Manufacturing North Carolina, a $13.9 billion facility slated to begin production in 2025,” Toyota said on April 25.
Kohler Co., maker of kitchen and bath products, inaugurated a 1-million-square-foot manufacturing facility in Casa Grande, Arizona.
Crystal Window & Door Systems announced a new manufacturing facility in Johnston County, North Carolina, to specialize in aluminum and vinyl extrusion, and window and door fabrication.
ION Storage Systems commissioned a solid-state battery manufacturing plant in the US, in Beltsville, Maryland.
GAF Energy inaugurated its 450,000-square-foot Timberline Solar manufacturing facility in Georgetown, Texas.
GF Casting Solutions AG, a division of Georg Fischer AG, headquartered in Switzerland, announced a new manufacturing facility in Augusta, Georgia, to produce large structural cast-aluminum components for the automotive industry.
Boviet Solar announced a 1-million-square-foot manufacturing facility for solar panels in Greenville, North Carolina.
Green New Energy Materials, a battery component manufacturer, announced a $140 million lithium-ion battery separator manufacturing facility in Denver, North Carolina.
