When Pat McIntyre’s company started making its smart sprinkler system 10 years ago, ETwater’s production was done in China, where labor costs were cheaper.
Today, the company does its manufacturing at a production facility in Silicon Valley’s Santa Clara. Although McIntyre’s costs initially went up by 10 to 15 percent, thanks to automation, his new factory is much more efficient.
It also employs far fewer workers.
As President Donald Trump pushes U.S. companies to make more products in the U.S., firms like ETWater and Tesla, which rely heavily on automation, illustrate that it can be done in some industries.
But even if more companies start making products in the U.S., experts in manufacturing and job creation say Trump’s pledge to tax offshore manufacturing isn’t likely to produce a boom in old-style factory jobs. And despite rising labor costs in China, it’s still cheaper for Apple – and consumers – to build smartphones overseas.
“The success of Tesla is a good example that you can bring manufacturing back to this country, for sure,” said Venky Ganesan, managing director of Menlo Ventures and chairman of the board of the National Venture Capital Association. “But don’t expect it to create a tremendous amount of jobs.”
Since winning the election, Trump has doubled down on his campaign promise to tax companies that make products overseas and ship them to the U.S., meeting with tech and auto executives last week to talk tariffs. The White House has announced a new Manufacturing Jobs Initiative, which will tap tech leaders, including Tesla CEO Elon Musk, Intel CEO Brian Krzanich, and Dell Technologies CEO Michael Dell. Trump also has promised to ease regulations in the U.S. as an incentive for companies to bring production here.
But LED lighting company Cree, based in Durham, isn’t planning any changes in its manufacturing strategy.
Chuck Swoboda, CEO of Cree, told analysts during its earnings conference call last month that “right now, it’s business as usual.”
We’re going to wait and see but obviously monitor things closely. And, if we need to, we’ll make adjustments.
Cree CEO Chuck Swoboda
Cree produces the chips for its LEDs in Durham but packages them into finished products at a plant it runs in China.
“I think we’re in an OK place there,” he said.
As for Cree’s lighting fixtures, the primary manufacturing facility is its plant in Racine, Wisconsin.
Still, Swoboda said that it’s unclear how tariffs might change under the Trump administration.
“We’re going to wait and see but obviously monitor things closely,” he said. “And, if we need to, we’ll make adjustments. But right now it’s business as usual.”
Not cost-effective for some
Some experts say it doesn’t make sense for consumers to bring all manufacturing back home, especially some tech gadgets.
“The question everyone seems to be asking is: Will the iPhones come back?” said Andy Tsay, a business professor at Santa Clara University in California who specializes in global manufacturing. “My answer is: there’s not a good economic reason for it.”
Trump has pressured Apple CEO Tim Cook to make iPhones here, but the smartphone manufacturing industry already is entrenched in China. Everything from the companies that make smartphone components to the technicians who repair the factory machines is there, Tsay said, and moving that massive ecosystem to the U.S. would be a costly and time-consuming endeavor.
Some of that cost would be passed on to consumers. The price of a $749 iPhone 6s, for example, would increase between $30 and $40 if Apple assembled the product closer to its Cupertino, Calif., headquarters, according to a report by the MIT Technology Review. If the phone’s components also were made in the U.S., the price likely would go up $100.
The auto industry faces a similar problem, said AutoPacific analyst Dave Sullivan, of Michigan.
Union workers at U.S. auto manufacturing plants make almost $50 an hour, he said, compared to $7 or $8 in Mexico.
“There’s a lot working against the notion of bringing auto manufacturing back to the U.S.,” he said.
Emerging tech stays close to home
Still, in some regions manufacturing is in the midst of a revival that predates Trump’s entrance into politics. In Silicon Valley-centered fields like autonomous vehicles and artificial intelligence, companies are primed to open local factories for everything from the cars themselves, to the semiconductors that go in those cars, to the cameras and other sensors used by AI technology, said Peter Leroe-Munoz, vice president of technology and innovation for the Silicon Valley Leadership Group.
“I really see these emerging companies being localized here in Silicon Valley,” he said. “It’s going to make more and more economic sense to build, produce and ultimately sell in the same marketplace as where your expertise and ultimately your consumer base is.”
And other companies were already reconsidering China for their plants. Labor costs are rising in cities such as Beijing and Shanghai after years of American factories pumping money into the local economies, Tsay said, making it less enticing for companies to build factories there.
Chinese factories also tend to be less productive, while U.S. plants rely more on automation and require fewer human workers. At Tesla’s Fremont, Calif., factory, for example, which moved into an old Toyota plant in 2010, a combination of robots and skilled technicians and engineers replaced many of the blue-collar laborers who used to build Toyotas there. Tesla says it employs more than 6,000 people at the factory, including former workers who were retrained.
ETwater started production of its smart sprinkler system in 2006 in China because it was cheaper, said McIntyre. In 2009, the average manufacturing worker in the U.S. made $34.19 an hour, compared to $1.74 in China, according to the most recent data available from the Bureau of Labor Statistics. But having a factory so far away made quality control difficult, McIntyre said.
ETwater began transitioning to a Santa Clara factory in 2010. While the Chinese plant employed hundreds, McIntyre said, the more automated Santa Clara factory has about 50. After the move, the number of sprinklers returned by unhappy customers was cut in half.
“If there is a quality issue, we’re there,” McIntyre said. “We can work collaboratively with our engineers.”
News & Observer staff writer David Ranii contributed