The cost of building a car manufacturing plant varies greatly depending on the type of company, the size, and the materials used.
The typical cost for building a world-class facility is about $8 billion. This does not include infrastructure improvements like roads and power lines, which can add another $2 billion or more to the project.
Car manufacturing plants are a huge investment and can produce a significant number of vehicles.
In order to be profitable, it is important that the plant is running at its full capacity – which is why it’s important to calculate the cost of building a car manufacturing plant before jumping into the deep end.
The factors that can affect the total cost are things like specific geographical location, size of the plant, number of employees, type of products, and expected automation.
The materials required for construction can also greatly affect the total cost.
The 11 Common Cost Factors to Build a Car Manufacturing Plant
The automobile industry has changed remarkably in the last 20 years.
Automakers like General Motors and Toyota have restructured their operations to focus on producing higher quality vehicles, while at the same time controlling costs.
And with the global demand for cars projected to increase by 50% before 2020, automakers will need to develop new ways to meet that increased demand while continuing to control costs.
Building a car manufacturing company can be extraordinarily expensive.
Though it is impossible to determine the exact cost because no company eventually didn’t reveal the cost statistics. Let’s take a look at the most common cost factors:
1. Research and Development
Automobile manufacturing is a global business. In order to keep up with the changing times, the automotive industry has been forced to make significant investments to remain competitive.
One such investment is paying for research and development in order to build a car manufacturing plant.
According to Automobile Industry Retail Price Equivalent, and Indirect Cost Multipliers research in 2012, the research and development of planting a car manufacturing company constitute at least 16% of the total.
2. Land and Infrastucture
In order to manufacture a car, a company needs land and infrastructure. The process starts with choosing a location for the manufacturing plant.
In order to have the most cost-efficient manufacturing facility, it is important to have an area that can accommodate all aspects of the operation from production to shipping.
A new car manufacturing plant needs about 500 – 800 acres which will yield 500,000 to 1,000,000 square meters of factory space.
Land costs are often an expensive component, that can reach US$1 billion. Leases for steel mills, foundries, and other manufacturers to produce parts necessary for car production can cost between US$300 million to US$1 billion.
3. Labor Costs
The labor cost to build a car manufacturing plant is one of the largest expenses for any new plant.
It takes more than just the initial salary to get employees to turn up for work on day one, in fact, it may cost 2-5 times their original pay in lost time due to absence.
This can quickly add up in costs over time if the company doesn’t handle it with care.
4. Maintenance Cost
Building the plant itself, the parking lot, and offices can cost between $1 billion and $2 billion. On top of this, the annual operating cost will be around $500 million per year.
The construction workforce alone will need to be at least 500 workers strong.
5. Design and Construction
The average construction cost to build a car manufacturing plant is $1.5 billion. The design can often be even more expensive than the construction.
For example, the Tesla Gigafactory in Nevada cost $5 billion before it was completed in 2020, about half of which went toward design.
The cost to build a car manufacturing plant varies widely depending on the location, size, and type of plant.
Different costs can depend on if the plant is an assembly-only factory or if it also supports vehicle distribution functions.
An automobile manufacturing plant should also be designed to integrate with other logistics facilities that are located nearby.
Lastly, incentives offered by local governments may affect the final cost of the facility.
6. Equipment & Material Inputs
The equipment and raw material costs to build a car manufacturing plant are significant. It will cost $3.2 billion for the equipment and $2000 million for the row materials.
This includes $2 billion for machinery and $1.2 billion for construction materials.
These materials include metal sheets, pillars, wires, steel piping, silicon pipes, timber boards (for flooring), boilers (for power), doors (steel-framed), windows (glass), and wall panels (metal-framed), and ceiling panels.
To meet the demand of the growing population, this new industry will promote efficiency and sustainability, as well as reduce pollution and traffic congestion in the area by producing fewer cars than factories currently do.
7. Packaging cost:
The process of building a car manufacturing plant can be costly. The cost of the land, equipment, and machinery are not the only expenses that need to be budgeted for.
The cost of packaging cars is an expense that is often overlooked, yet necessary.
Packaging costs may include generating labels for purchase orders or assembling palletized shipments of finished goods for shipment to customers.
8. Logistic and Energy Costs
The transportation cost and warehouse cost can be considered logistic costs.
Transportation of raw material from supplier to car manufacturing plant and then the distribution of production products to consumers involves multiple stages.
Therefore, it’s best to manage these costs upfront before they increase further during operations. Energy consumption also contributes significantly to total operating costs.
9. Greenhouse gas emissions cost
When a company builds a new plant to manufacture cars, the total cost is comprised of many factors.
To oversee the creation of a plant that will be energy efficient and environmentally friendly, a certain amount of money must be spent on green technology.
In some cases, greenhouse gas emissions can cost up to $1 billion for each new facility.
Vehicles powered by hydrocarbon fuel emit greenhouse gases into the atmosphere which contribute to climate change.
According to a report by the Environmental Protection Agency (EPA), there is a cost associated with creating these emissions.
The EPA estimates that regulations to limit greenhouse gas emissions will lead to an increase in the costs of building and operating a car manufacturing plant.
This might discourage businesses from making investments in this industry and cause some existing car manufacturers to reconsider their operations and how they produce cars.
10. Sales tax
The cost of sales tax for a car manufacturing plant varies depending on the location.
For example, in Illinois, at 6.25% sales tax, it costs nearly $1 billion to build a car manufacturing plant. In Georgia at a 4% sales tax, it would be closer to $500 million.
This is because Georgia has no state income tax and Illinois has one. Georgia also has no property taxes whereas Illinois does have them.
11. Advertising
A car manufacturing plant is not an easy thing to build; it takes a lot of effort. Marketing of products is the key to any business to success.
For example, in 2012, GM spent $8.8 billion on capital expenditures for the first 9 months of the year and they estimate that it will cost them $13 billion to manufacture new plants, facilities, and equipment for new model launches over the next 12 years.
How long does it take to build a car manufacturing plant?
When deciding to build a new car manufacturing plant, it is important to consider the amount of time that will be required to complete it.
Every car manufacturing plant has different building timeframes, but it typically takes between one and three years to construct an automobile assembly plant.
Site excavation, site preparation, transportation of materials, and construction are all factors that can affect the time it will take to complete construction.
For example, building a plant in rural America can take up to two years due to fewer large-scale suppliers in the region.
Construction on an urban site may only take one year or less because there are more suppliers nearby.
Final Thoughts
Car manufacturing plants have a lot of costs associated with them. They have to be built from scratch, which can take years and cost hundreds of millions.
The equipment inside the plant is expensive, and hiring a crew to work in a plant can be difficult because of the competition for skilled workers.
The more efficient a car company can make their cars while still being profitable, the better off they will be.