As I always tell you, I welcome feedback. And I even appreciate critical comments.
I think it’s important that our readers are thinking for themselves.
And the points they bring up give me a chance to dig into things from a new angle or in greater detail.
That is why over the last 10 years, I’ve grown to respect and appreciate more and more the people who disagree with me and are willing to tell me.
While positive feedback is a real morale booster, negative feedback provides me with an opportunity to improve my argument, clarify my point, and/or learn from my mistakes.
Today, I’m grateful for the opportunity to clarify several points I made in the September 13 edition of Intelligent Income Daily, which you can read for yourself here.
We received some great feedback from a subscriber about the holes he sees in the roadmap we’ve laid out for America’s energy future. I’ll break down his comments and address them at length.
So grab your cup of coffee or crack open a beer (depending on the time of day), and let’s dive in…
Is America’s Manufacturing Boom Really Taking Place?
Today’s feedback comes from engineer Kevin M., who has worked in the automotive industry since the 1990s. His feedback on the manufacturing boom provides valuable insight that might be on other readers’ minds as well.
Kevin writes:
The current state of manufacturing is at a breaking point at least for the automotive supply base.
The OEMs [original equipment manufacturers] continue to pick off engineers and other key salary employees at our development center. But our U.S.-based plants are getting absolutely killed.
In Q1 of 2023 for instance, we had 50% turnover of employees, both salary and operators at our largest plant in Michigan. And it continues today. I’m sitting inside of purchasing in our supplier development team, and I can tell you our supply base is suffering just as much. How in the world is manufacturing going to stabilize while at the same time dumping hundreds of billions of new plants on the market that someone needs to staff?
Everyone thinks the market will just automate. Nice try. Automation is massively expensive for ultra-competitive markets, and it is extremely complex as well. Yes, there will be some automation. But in general, we need both salary and operators to run the plants.
I see a disaster in front of us… and everyone is sleepwalking while moving full steam ahead.
– Kevin M.
First off, thank you so much for providing your feedback and experience.
Big changes in manufacturing are happening right now in the automotive industry, as I am sure you are aware.
And to clarify the point I was making in my original article, there are a couple of trends I see at work here.
One is the transition to electric vehicle (EV) technology.
In the short term, EV manufacturing is going to increase the demand for labor. That’s because car companies are setting up new EV production lines while continuing to produce traditional internal combustion engine (ICE) vehicles.
But in the long term, EV assembly will require less labor. That’s because EVs are simpler and have fewer parts. That also means they’re easier to make with robots.
Last year, Ford CEO Jim Farley said that the labor cost of producing an EV is about 40% lower than a traditional ICE car.
Instead, more of the cost of producing EVs will shift to battery manufacturing. That’s where another big trend is at work – reshoring the supply chain.
For many decades, it has been cheaper for auto manufacturers to have the parts for cars made overseas. The factories in America were only responsible for putting those parts together and adding finishing touches like paint.
But the Inflation Reduction Act created a new incentive to bring more of the supply chain back to America. To qualify for the full $7,500 tax credit, an EV must have 50% of its battery components made in North America. That requirement increases to 100% of battery components by 2029.
That’s why car manufacturers are setting up battery production plants across the country. If they don’t meet the requirements for the tax credit, their cars will be much harder to sell.
All of this is combining to create a short-term labor crunch.
That’s giving unions like the United Auto Workers a perfect opportunity to strike and demand higher wages.
But the unions know that over the long term, the lower labor requirements of making EVs are going to threaten their jobs. That’s why one of their key demands is job security in the EV transition.
The big changes in manufacturing could threaten the profits of companies that have to set up new factories and hire more workers.
But the trend is clear – more manufacturing is coming back to America.
That’s why we’ve been recommending investing in real estate and infrastructure that supports manufacturing, such as warehouses and utilities. (You can find out how to get my specific recommendations here.)
These are sectors that will see increased demand and reliable profits, regardless of how the labor situation plays out.
And my job is to make readers aware of trends before the rest of the market catches on.
So while you might not be seeing anything on the ground floor just yet, we’re following the money… And there’s a lot of money flowing into American manufacturing right now.
On to part two of Kevin’s comments…
EV Technology Is Still Developing
This reminds me of the monumental stupidity of electric vehicles…. They need massive amounts of resources to be extracted from the planet.
One newsletter writer I follow noted a couple of months ago that for one EV battery, it takes between 100,000-200,000 lbs. of mineralized ore to produce the metals required. Multiply this by the millions of EVs they are cramming down our throats… And they require massive subsidies to get people to afford them. How clean is extracting that much resource out of earth?
And then we need base power to charge these beasts. No way wind and solar are going to provide that.
And why are the globalists not supporting nuclear? In Germany, the idiots shut down their last four nuclear plants over the past two years!
– Kevin M.
Like you, Kevin, I’m not ready to give up my gas-powered car just yet. But I don’t think that means EVs are stupid.
EV technology is still developing. That means that problems like range, charging, and price should improve over time as manufacturers get better at producing them.
Yes, it’s true that EVs require more minerals to produce. Adding huge batteries means that manufacturing EVs produces about 40% more emissions than a traditional ICE car.
But EVs make up for that over their lifetime of use.
An ICE car is about 30% efficient. That means only 30% of the energy in the fuel gets converted into movement. An EV, on the other hand, can reach 80% efficiency and can recover energy with regenerative braking.
So even though it may be more environmentally friendly to produce traditional ICE cars, using ICE cars releases more emissions over the long term. About 75% of a traditional car’s lifetime emissions come from the fuel it uses.
That doesn’t mean that using an EV doesn’t produce emissions as well… After all, the electricity must come from a power plant. And right now, we’re still using a lot of coal and natural gas for electricity.
But even with our current mix of fuel sources for electricity, EVs break even with ICE cars in emissions after just 15,000 to 20,000 miles of use. That’s a fact.
That being said… over its lifetime, an EV will produce about 30% fewer emissions compared to a traditional ICE car.
That brings us to your second point. To get the most benefit out of EVs, we also need to decarbonize our electricity production.
Utilities across America are retiring coal plants and adding more wind and solar. But renewables also come with new problems because they are not reliable all the time.
That means we also need to build energy storage or peaking power plants, which only run when electricity demand is high.
This energy transition is a process that will take decades to complete. And in the meantime, we’ll continue to see strong demand for natural gas.
So why don’t we use nuclear?
Nuclear power is one of the cleanest and safest sources of energy.
But it has a couple of big problems: public perception and cost.
People are afraid of nuclear power. Even though accidents rarely happen, those that do are highly publicized.
Nobody wants a nuclear power plant in their backyard. There’s a lot of red tape that makes building a reactor a lengthy and costly process.
The Vogtle 3 nuclear power plant in Georgia was completed this summer. And it is the only nuclear plant to be completed in America in the past three decades.
It was originally estimated to cost $14 billion. But it took six years longer than expected to build. So the final bill was more than $30 billion.
Research firm Lazard estimates that nuclear energy costs $141-$221 per megawatt hour (MWh). An average home uses about 11 MWh of electricity each year.
Natural gas and renewable power plants are cheaper. Combined cycle gas power plants can produce electricity at $39-$101 per MWh. Utility-scale solar plants with battery storage can produce electricity at $46-$102 per MWh.
It’s hard to support a technology that’s expensive and that nobody wants.
Countries around the world have different levels of support for nuclear power. Germany is one extreme example of completely phasing out nuclear power. While China and India are actively building dozens of nuclear power plants.
Japan decided to phase out nuclear power after the Fukushima disaster. But last year, it changed its mind and began restarting reactors.
Here in the U.S., politicians realize nuclear is an important source of baseload power. That’s why the Inflation Reduction Act included a tax credit that subsidizes nuclear power to keep it competitive with gas and renewables.
So we may not be building many new reactors, but we’re maintaining existing ones.
Nuclear power isn’t going away anytime soon. New technology like small modular reactors could improve safety and reduce costs, making nuclear power a better option in the future.
Please Send Us Your Feedback
I hope this clarification helps paint a better picture of what’s ahead for America’s manufacturing and energy future.
And if you have questions about today’s topic or anything else I’ve written, please click here to contact me and my team at Wide Moat Research. My handpicked team of analysts are highly experienced and positioned to help you navigate any market condition.
If there are any other topics you’d like me to write about, I’d love to hear from you.
I appreciate any and all feedback – the good, the bad, and the ugly.
Don’t hold back the punch…
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily