Chapter 220 Best Solution

Jessica picked up her iPad and flipped to the supply chain database page. The Big Three automakers in Detroit had laid off a large number of workers over the past decade, but the supply chain hadn't completely died off; second- and third-tier suppliers were still around.

Ford and GM had moved most of their parts orders to Mexico and China, causing many stamping plants, injection molding plants, and welding workshops around Detroit to operate at only half capacity.

These factories didn't care what was written on your car logo; they only cared about whether the order volume was enough to fill their idle capacity.

"There are currently nearly forty stamping parts suppliers around Detroit," Jessica said, tapping a supplier directory on the screen. "The number of interior assembly suppliers is even higher, because interior categories are too diverse, and no single company can monopolize all the sub-categories."

"If you source body stamping parts and interior assemblies from Detroit, there is a factory in Ohio that does truck frame welding, and its idle capacity rate is over thirty percent."

"In addition, local labor is very important. This line is the key to the deduction calculation. As I just made very clear, as long as the sum of US-sourced parts, American worker wages, and other direct manufacturing costs exceeds 30% of the final ex-factory price of the vehicle, you can get that 3.75% tariff deduction."

"Labor costs account for the largest chunk in the localization content calculation for US manufacturers; it's even more effective than the parts themselves," Jack reminded him.

"Part procurement prices are fixed, but worker wages are flexible. Plus, we have a power plant, so the electricity cost for the factory in Ohio is lower than any stamping plant in Detroit."

"For every bit we push down the cost per kilowatt-hour, the corresponding tariff deduction threshold gets lower. In the best-case scenario, your localization ratio can approach forty percent, far exceeding the deduction threshold."

"At the same time, your Power Company can treat the factory as a fixed, large electricity consumer, further diluting the load fluctuation costs of your microgrid."

"One link feeds into another; you're not just opening an assembly plant, you're also gaining an electricity customer for yourself," Jessica said.

"So, what is the approximate ratio of the cost structure for assembling a vehicle?" Mu Xin asked.

Jack pulled the last sheet from under the documents. It was a template he had downloaded from the Ohio Department of Development website early that morning, containing the cost breakdown for locally produced medium-duty electric commercial vehicles in Ohio.

Data such as hourly wages, equipment depreciation, and tax exemption amounts were clearly marked on it.

"According to the current level in Ohio, if a medium-duty electric vehicle were imported as a complete vehicle entirely from China, the landed cost would be around twenty-five thousand to thirty thousand dollars, and after adding tariffs, it would become a price of over fifty thousand."

"If we go with local assembly, the procurement price of BYD's core three electric systems accounts for about sixty percent of the vehicle's material cost, and the remaining forty percent of material costs come from Detroit."

"Adding the US-sourced material costs to your factory labor, energy expenses, and manufacturing depreciation in Ohio, the total cost of the vehicle is around twenty-something thousand dollars. If the final ex-factory price is just over thirty thousand dollars, you still have a profit margin of about three thousand dollars."

"If we can gradually reduce the proportion of Chinese imported parts, or if tariffs loosen up one day in the future, the profit margin will be even higher."

"Over three thousand dollars per vehicle," Mu Xin thought to himself as he calculated. "For me, the profit margin is big enough, but for Trump, it's not a question of profit; it's that this vehicle is made in Ohio!"

"Let's keep calculating. Suppose I buy a plot of land north of Oxford Town to build an assembly line, with an annual output of even just two or three thousand commercial vehicles, and each vehicle sells for less than forty thousand dollars—five thousand to eight thousand dollars cheaper than the equivalent Ford vehicle."

"At the same time, I would need to hire over a hundred local workers in Ohio. Plus, with the Ohio State Government tax exemptions for manufacturing investment, I can enjoy a three-year exemption on state-level corporate income tax."

"Jessica, have you checked this clause?" Mu Xin looked at Jessica.

"I have. The clause is valid until the end of 2029, which just happens to cover your investment payback period."

"The exemption ratio is one hundred percent for the first and second years, and fifty percent for the third year, provided that you hire more than sixty local workers." Jessica flipped to the page of the Ohio Department of Development document to confirm.

"Governor DeWine hasn't stepped down yet. Get him to sign it before he leaves office. After it's signed, even if the new Governor changes the terms, the approved projects won't be affected."

"Over a hundred manufacturing jobs in Ohio, plus those stamping plants and interior suppliers around Detroit that you've brought back to life."

Jessica flipped the supplier directory on her iPad to the next page. "Ohio and Michigan, two swing states, now have new manufacturing projects and new employment growth at the same time."

"So, what will your final localization ratio be?" Jack asked.

"Conservatively estimated, the localization ratio per vehicle will be between thirty-eight and forty-five percent, far exceeding the thirty percent deduction threshold."

"And in the future, if the suppliers in Detroit increase their capacity under the stimulation of my orders, the proportion of local procurement can go even higher."

"BYD is unlikely to oppose me sourcing stamping parts in the US; there are no technical barriers for these items." Mu Xin gave an approximate figure.

"As for whether Trump will notice this project, that's just a matter of time. An assembly line with an annual output of several thousand commercial electric vehicles—this scale is nothing in the US commercial vehicle market."

"But if you place it next to a small town in Ohio with fewer than forty thousand people, it becomes the third pillar industry in that town, after the Power Company and the Hotel."

"After the news comes out, Trump's social media will repost it immediately, and he will say that it was his tariff policy that forced Chinese manufacturing to return to the US," Jessica said.

"Mr. Mu, your plan is already very clear. But there is one thing I must add: although we are all here right now, the current tariff environment could get better or worse at any time, so you need to act as soon as possible." Jack packed the scattered documents in front of him into his briefcase.

"There is one more question: what about the Ro-Ro ships? Didn't you just say that the US Maritime Administration is going to impose port fees on Chinese Ro-Ro ships?" Jessica asked.

"Our volume is too small; we don't need their Ro-Ro ships at all. If we really need Ro-Ro ships, we can talk about it then."

"First, let's settle the stamping parts suppliers in Detroit, determine the factory site in Ohio, and file the vehicle compliance documents for the assembly plant at the federal legal level." Mu Xin stood up and stretched.

"You should contact the people at BYD first..." Jessica closed her iPad and reminded him.