States in the US are offering lucrative subsidies to companies building electric vehicle (EV) batteries, semiconductors, and microchip plants. The incentives are aimed at attracting automakers investing in electrification and chipmakers expanding production in the US due to supply chain disruptions caused by the pandemic.

Many states are flush with cash thanks to inflation-juiced tax collections and federal pandemic relief subsidies. This has enabled them to offer grants, low-interest loans, municipal road improvements, and tax breaks to companies willing to set up shop in their states. In 2022, eight billion-dollar-plus incentive deals were finalized, with 18 of the 23 known “megadeals” exceeding $50 million in value. Of these deals, at least eight were for semiconductor and EV plants, with public money totaling more than $20 billion in subsidies.

Despite being embraced by politicians from both major parties and the business elite, these subsidies are viewed by academics who study such incentives as a waste of money and rarely decisive in a company’s choice of location. Nevertheless, states are competing to offer bigger subsidies, with many of the companies receiving them already profitable and operating globally.

Experts suggest that such subsidies are not always successful in creating the promised jobs and trickle-down benefits. Still, politicians believe that these incentives will attract investment and bolster the economy, as EVs and semiconductors are expected to be key growth areas in the coming years.

Companies like Tesla, which have been at the forefront of the EV revolution, have been recipients of subsidies from various states. The automaker has received subsidies worth millions of dollars from California, Nevada, and New York, among other states.

The semiconductor industry, too, has been a beneficiary of these incentives, with chipmakers like Intel and TSMC setting up new facilities in Arizona. Other states, like Texas, have been aggressively courting semiconductor companies, offering generous incentives to attract them.

While there are concerns about the effectiveness of these subsidies, there is no denying that they have been successful in attracting investment from some of the biggest names in the tech industry. As states continue to offer more lucrative incentives, it remains to be seen whether these subsidies will continue to be a key tool in attracting investment to the US.