The demand outlook for electric vehicles (EVs) has never been brighter, with sustained oil prices above $100 per barrel since March and potentially heading higher. The market for lithium-ion battery cells—the critical power source component—is forecast to grow by more than 20 percent per year through 2030, reaching $360 billion globally, according to McKinsey & Company. Historically, Tesla and Nissan were the major automakers manufacturing EV batteries domestically, but production is increasingly being onshored as supply chain disruptions persist and businesses pivot toward resiliency. There are now at least 13 new EV battery plants that are expected to be operational in the U.S. over the next five years, according to the U.S. Department of Energy.

EV megaprojects are multibillion-dollar investments, each employing thousands of workers and taking up several million square feet of industrial property. For example, Tesla's recently completed Gigafactory Texas cost more than $1 billion, consisting of 5.3 million square feet of operational space across several floors and employing an estimated 5,000 workers. These large-scale investments are transformational for the smaller, secondary industrial markets where they typically land and precede steep vacancy declines as well as surging rents and sale prices. The drivers of change in local market dynamics are both direct and indirect via the knock-on effects of expanding suppliers and shifting investor perceptions of the location due to these high-profile projects.

Outsized Vacancy Declines, Rent Growth, and Price Increases Follow EV Manufacturing Investments

In late 2012, Nissan opened a new plant 20 miles southeast of Nashville, Tennessee creating 1,300 jobs to produce lithium-ion batteries for its LEAF model electric vehicle. Over the next two years, vacancy in the Nashville industrial market declined by 350 basis points—almost twice the decrease experienced in the overall U.S. market during the same period. Similarly, rents in Nashville grew by 11.0% (compared to 6.4% in the overall U.S.), while sale prices for industrial properties spiked by 35.5% (compared to 19.6% in the overall U.S.). Similar stories unfolded following the completion of Tesla's Giga Nevada, outside of Reno, in 2016 and the announcement of its Gigafactory Texas in Austin in 2020. While other macro forces likely contributed to the growth of these markets, the sheer scale of the megaprojects relative to the size of these secondary industrial markets suggests that they were a significant driver. For example, Austin's industrial market is less than 10% the size of Southern California.

Future Electric Vehicle Megaproject Pipeline

In recent months, announcements of EV megaprojects keep racking up, and their locations are highly concentrated in secondary markets across the Southeast and Midwest. The impact on these industrial hubs is expected to replicate what happened in places like Nashville, Reno, and Austin, as the investments are large enough to permanently shift pricing and investor perception of markets. The following items are top considerations for EV megaproject site selection: 

• Proximity to existing automotive assembly plants

• Labor availability and cost

• Government incentives

• Proximity to raw materials

Beyond the production of electric vehicles, the growth of other high-tech manufacturing stands to contribute to the industrial expansion as we advance. Intel's announcement of investment in a new microchip plant in Columbus, Ohio, earlier this year—the largest single private sector investment in the state’s history—is a prime example. A record $16.9 billion of venture capital was invested in advanced manufacturing in the U.S. last year, which is up 142% from the previous all-time high set in 2020. Growing manufacturing domestically is a net positive for the industrial market. Cracks potentially emerging in the consumer market may impact the growth of retail, e-commerce, and third-party logistics provider occupiers but manufacturing growth in North America will help bolster absorption, particularly in the markets where these large-scale, long-term investments are being made.

Sources: Savills Research, McKinsey & Company, Real Capital Analytics, U.S. Department of Energy, Pitchbook, Statista

Opinions expressed by the authors are their own.