Election Won’t Derail Big Manufacturing Projects, But It Could Change Their Course

The CHIPS and Science and Inflation Reduction acts of 2022 led to an unprecedented boom in semiconductor and other major manufacturing construction, with $220B worth of projects announced in the first year alone.

Two years later, only about half of those with $100M or more invested are operational or on track for completion, according to the Financial Times' analysis of 114 projects.

Election uncertainty is among the top reasons companies cite when explaining delays — and the issue has become a point of contention between the candidates in November’s presidential election.

But while unsettled politics are taking a toll, those watching the slowdown note that delays of projects sparked by the initiatives have as much to do with elevated construction costs, high interest rates and other factors as with who takes over the White House in January.

And no matter who wins, sources say, federal funding is unlikely to dry up, though a changing of the guard could introduce new hurdles.

“Companies will always utilize any sort of situation to be able to explain something away rather simply,” said Scott Almassy, partner and semiconductor trust solutions leader at PwC, adding that the future of manufacturing projects is not as easy as waiting to see who is elected.

Shaky economic conditions and weakening consumer demand are driving companies to tighten their belts, leading to a contraction in construction spending, Reuters reported earlier this month.

That’s not to say election season isn’t doing its part to drag projects down.

Democratic nominee Vice President Kamala Harris and Republican challenger former President Donald Trump sparred over chips, manufacturing and China during this month’s debate. While Harris would presumably carry on the Biden administrative initiatives and has previously touted her tie-breaking vote to pass the Inflation Reduction Act, Trump vowed to rescind all its unspent funds if elected.

Neither campaign responded to Bisnow's requests for comment.

Companies are likely to perceive their projects’ futures differently based on who is elected. The Harris administration has lauded the success of the bills, and her presidency could usher in “a lot of the same,” said Jacob Jensen, a policy analyst for American Action Forum. Jensen noted that 31% of large manufacturing investment initiatives are delayed, 6% are paused and the status of another 14% are unclear.

The impact of Trump’s administration is murkier, considering he has mentioned halting IRA funds, Jensen said. The IRA, along with CHIPS, offers incentives to support clean energy production, semiconductor manufacturing and carbon emissions reduction.

“I think a lot of it is a wait and see,” Jensen said. “And given the fact that already almost half are stalled out, the results of the election might not have too much of an impact.” 

Companies with large projects are probably waiting on costs and interest rates to go down, considering the latter is expected in the near future, with the first in several cuts expected Wednesday, he said. 

Part of the stall for semiconductor manufacturers is to see what the economic and tax landscapes will be under a new administration, which can impact the decisions companies make on a day-to-day basis, Almassy said.

But when determining long-term capital allocation, a presidential election is not a deciding factor, though there are some policies that could be impactful, he said

“If one of the administrations put significant tariffs on China for everything, and we can't get mobile phone chips or networking chips, then they’ll probably pivot to [making those],” Almassy said. 

Industry insiders say there is little historical data to rely on about whether current project delays are “normal” because the nation has never seen an influx of chip manufacturing like that spurred by the CHIPS Act. 

The push to revive U.S. manufacturing has now led to over $898B in private investment, Construction Dive reported. The percentage share of manufacturing starts within total commercial construction skyrocketed, peaking at 21% in early 2023, up from 5% in summer 2020, according to the article. 

For decades prior, the U.S. basically ceded control of manufacturing to Asia, Almassy said. Though bringing jobs back to the U.S. was viewed favorably, a capital infusion was necessary, sources told Bisnow. 

“The semiconductor industry is incredibly capital intensive,” Almassy said. “It requires a ton of money, but it also requires planning ahead.” 

Biden signed the CHIPS and Science Act into law in August 2022, providing $53B for American semiconductor research, development, manufacturing and workforce development.

This led to immediate private sector investments, including a $40B investment from Micron to bring the country’s share of memory chip production from 2% to 10% and Qualcomm and GlobalFoundries investing $4.2B to expand GlobalFoundries’ New York manufacturing facility. 

GlobalFoundries said in February that the U.S. Department of Commerce planned to award it $1.5B of CHIPS funding to help it construct a new fabrication facility at the New York site. 

But other projects have not moved along as smoothly. The largest projects on hold include Enel’s $1B solar panel factory in Oklahoma and LG Energy Solution’s $2.3B battery storage facility in Arizona, the Financial Times reported.

Taiwan Semiconductor Manufacturing Co. in January announced that its second factory in Arizona would be delayed by two years.

“The cost of construction has been far greater than they previously thought,” Jensen said of that project. “Part of that is just due to materials and other things relating to regulations.”

No CHIPS Act winners have received their money yet, and they will not until they meet key milestones and the government conducts significant due diligence, Bloomberg reported. 

Intel Corp. is seen as a leader in the manufacturing resurgence, and it is slated to receive the largest CHIPS award with $8.5B in grants and $11B in loans. But Intel has expressed frustration with the government’s delay in dispersing the funds. It is also resisting sharing certain information that the government has requested to vet the viability of its manufacturing road map, unnamed sources told Bloomberg. 

To date, projects worth $84B have been delayed or paused indefinitely for at least two months, according to the Financial Times analysis.

That is an eye-popping number, but it must be considered that fabrication facilities are very specialized and subject to construction delays, Almassy said. And the upcoming election is not likely to blame.

“Most construction projects are behind schedule at any given time,” he said.

Attrition is expected, John Hensley, vice president of markets and policy analysis at American Clean Power, told the Financial Times.

“Not every single one of these facilities is going to come online,” Hensley said. “That’s just a healthy part of the competitive landscape.” 

Yet semiconductor manufacturers have significant motives to finish their projects, Almassy said. Despite election year rhetoric, there is bipartisan support to enhance U.S. manufacturing capabilities and claim credit, so these projects are generally looked upon favorably, he said.

An overproduction in China recently slowed demand, showing the semiconductor industry is cyclical, Almassy said. Manufacturers want to be ready when demand surges again.

And it's difficult to repurpose semiconductor fabrication facilities, which are being built in lightly populated areas outside of major metros. Abandoning projects is not ideal for anyone, he said.

There is also a national security component to onshoring microelectronics, Aaron “Ronnie” Chatterji, a Duke University professor of business and public policy who was a White House advisor on the CHIPS Act, told Yahoo Finance. Some chips are critical to U.S. national security because they are used for quantum computing and other specialized military capabilities.  

Onshoring microelectronics contributes to economic security, which makes the CHIPS Act durable, Chatterji said in the interview. It would be politically difficult to pull funds back.

“That’s why so many folks rallied around it,” he said. “So I think no matter what the administration looks like in the next four years or after that, there will be a strong bipartisan consensus for CHIPS … I think CHIPS is going to be just fine in terms of the political environment.”