Market News: Corporate Tax Breaks Surge in Push for Chip and Electric-Vehicle Factories.
Currently, Semiconductor and Electric-Vehicle industries are seeing a surge in output.
A number of semiconductor and equipment manufacturers have announced their plans for expansion. Intel Corp. proposes to invest $20 billion to construct two new fabs in Ohio, while Taiwan Semiconductor Manufacturing Co. aims to invest $40 billion to expand its plant in Arizona. The primary factors are the Chip and Science Act and the states’ issuing of considerable tax incentives in response to the need to seek new jobs.
On Aug 2022, Joe Biden signed the Chips and Science Act, aiming to boost US semiconductor manufacturing. It would invest $52.7 billion in additional projects as well as direct financial aid for the development and expansion of semiconductor manufacturing facilities. A $39 billion fund would offer immediate financial support, among other things, for the development of manufacturing facilities. The rest would be used for R&D. Moreover, it offers investment tax credits that let businesses to deduct 25% of their capital expenditure expenditures. The incentives are meant to offset years of manufacturers moving production overseas to cut costs by incentivizing chip makers to develop and update fabrication facilities in the United States. Probably next week(the end of the Feb), the Commerce Department intends to publish information on how businesses can apply for subsidies to support increasing domestic semiconductor production under the Chips Act, igniting competition between domestic and international manufacturers for a share of $52.7 billion in federal funds.
Besides the Chip Act, many states begin to issue policies to stimulate factory construction. Georgia, Michigan, and West Virginia are among the states and local governments that have pledged to distribute at least $1 billion in subsidies eight times in 2022. Companies received these tax reductions, cash subsidies, and other incentives in exchange for starting manufacturing. The increase in these incentives demonstrates how federal expenditure on the Covid-19 epidemic continues to permeate local government. Moreover, it demonstrates how governments’ ferocious competition with one another is helping large corporations in their negotiations for subsidies. From a manufacturing perspective, they are considering relocating their facilities to the United States. Manufacturers of electric cars, batteries, computer chips, and solar panels are scrambling to locate locations in the United States in order to satisfy surging demand and get significant government subsidies. Many businesses are contemplating relocating their headquarters from costly locations to less expensive locales. From the state’s perspective, the subsidies are rewardable because they generate employment and stimulate economic development, resulting in increased tax income over time. Result of these factors, the increase in Chip and EV factories seems an inevitable trend. These also generate abundant investment opportunities. For example, we could look into industries like grid infrastructure, which has a 5-year CAGR of 48.7% and shows great growth potential. The primary drivers included the rising need for energy storage resulting from the vast building of EV manufacturing and the hiking demand for energy utilization.
