Tucson faces post-COVID hurdles, opportunities in attracting firms

The Tucson region has seen some success at landing new companies and local business expansions in recent years, despite the economic chaos created by the COVID-19 pandemic.

But the Old Pueblo still faces evolving challenges — and some new opportunities as well — as the pandemic has forever disrupted some traditional business and economic-development models, the head of the local economic-development agency Sun Corridor Inc. says.

“I thought that by now, we’d be back to normal. I was so wrong,” Sun Corridor’s Joe Snell said Wednesday at a sold-out annual meeting luncheon crowd at the El Conquistador Tucson Hilton Resort.

“These are different times — looking back at the last three years, the drivers have obviously changed,” said Snell, who became head of what is now Sun Corridor in 2005.

Major disruptions in the global supply chain caused by the pandemic have prompted more companies to look to relocate or expand domestic production for critical products like semiconductors and medical devices, Snell said.

Sun Corridor has seen a 40% increase in the number of manufacturing project prospects in the past three years, while demand for office projects has plunged 78%, he said.

Meanwhile, the growing use of electric vehicles has more than tripled inquiries about automotive-related projects, said Snell.

Last December, Utah-based startup American Battery Factory announced plans to build a new headquarters and its first “gigafactory” to make proprietary lithium iron phosphate battery cells at a site south of the Tucson International Airport, with a planned investment of more than $1 billion and potentially up to 1,000 jobs.

The company says it’s on track to break ground this summer at its site at Pima County’s Aerospace Research Campus.

Also in December, Tucson-based Sion Power Corp. announced it would expand production of its lithium-metal battery cells for EVs to a 111,400-square-foot building on Tucson’s south side and hire 150 workers when renovations are completed. The factory is expected to be up and running in 2026.

Other business relocations and expansions in the past three years include a major expansion of Roche Tissue Diagnostics’ Marana site, an expansion of Advanced Financial Co.’s local customer-service center, an expansion by self-driving truck developer TuSimple and the relocation of autonomous driving startup Pony.ai.

“Despite all of the chaos, it’s been pretty good the last three years,” Snell said, crediting the early efforts by local business leaders to respond to the pandemic.

Lacking ready space

While Sion found an existing building that suits its purpose, the lack of move-in-ready industrial space in the Tucson area remains a major concern, Snell said.

“We have a shortage of buildings we can put companies in, and we also have a shortage of large parcels of land that are suitable for manufacturing,” he said, calling Tucson “a victim of its own success.”

“What worries me is projects that are taking a sniff at us but flying right over us” because of the lack of industrial space, Snell said.

The Tucson area also needs major investments in infrastructure, including fixing many local roadways, installing new power lines and new high-speed broadband networks, he said, noting that poor roads alone can turn off prospective companies.

Workforce development and talent attraction remain major drivers of companies’ site-selection decisions, Snell said.

Talent recruiting and retention was a major thrust of “The Pivot Playbook,” an initiative by Sun Corridor in 2021 to recalibrate its efforts amid the pandemic.

The plan also included things like leveraging business migration toward medium-size markets, adding shovel-ready building sites and speculative industrial buildings, developing new workforce training programs and boosting local tourism.

Efforts to boost talent attraction include “ThriveinTucson.com,” an online portal hosted by Sun Corridor that touts Tucson’s urban energy, arts and culture, affordability, lifestyle, sports, education including the University of Arizona and major employers.

Changing landscape

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Judy Rich, president and CEO of TMC Health and outgoing chair of Sun Corridor, said Tucson is on an upward trajectory as Sun Corridor focuses on attracting new companies as well as helping local firms expand.

Sun Corridor is a mainly business-funded nonprofit organization supported by “investors” including most of the region’s biggest employers and partners, including local governments, the UA and the Tucson Airport Authority. It was founded in 2015 as a successor to Tucson Regional Economic Opportunities Inc.

“But the economic landscape is changing fast... there may not be a going back to the normal that we knew before,” said Rich, who, after three years as Sun Corridor chair, was replaced by Susan Gray, president and CEO of Tucson Electric Power Co. parent UNS Energy Corp.

While Tucson looks forward to building up its green-energy industries, including battery manufacturing, an energy-policy expert told the Sun Corridor crowd that the nation has a lot of work to do to make the transition to clean energy.

Clean-energy dilemma

Keynote speaker James W. Coleman, a Southern Methodist University law professor who is a non-resident senior fellow at the conservative American Enterprise Institute, said U.S. electricity generation from coal-burning power plants had dropped since 2010 to 19% of total generation in 2020, natural gas had risen sharply to a 40% share, with renewables and nuclear each about 20%.

While renewable energy resources like solar and wind are expected to generate 49% of global energy by 2050, natural gas is needed for now to balance the power grid by supplying power when the sun isn’t shining and the winds aren’t blowing, Coleman said.

Amid the ongoing energy transition, America’s power grids have been pushed to their capacity, Coleman said, noting that most of the U.S. including the Southwest is now at “elevated” risk to potentially run short of operating reserves in above-normal summer conditions.

Battery storage of renewable energy is one solution, but a major issue in the transition to renewable energy and transportation electrification is America’s dependence on China and other nations for critical battery materials, Coleman said.

While the U.S. is the world’s top producer of oil and natural gas, it doesn’t crack the top 10 for the most important commodities in the energy transition, including lithium and cobalt, he noted.

“We have a lot of dependence on countries we don’t want to depend on,” Coleman said.

Besides mining raw materials, China is the leading processor of lithium, cobalt and rare-earth elements used in many electronic devices and makes 66% of the world’s EV battery cells, he said.

Local solutions

A current push to boost U.S. mining of critical metals includes the planned Hermosa mine in the Patagonia Mountains south of Tucson, which plans to mine zinc and manganese, two critical minerals used to make electric vehicle batteries and other products for the growing clean-power economy.

In early May, the proposed $1.7 billion project became the first mine to be accepted into an Obama-era program streamlining the federal permitting process for critical infrastructure.

Emerging technologies, including new forms of energy storage and new battery chemistries, could help the U.S. in its energy transition, Coleman said.

American Battery Factory is touting its lithium-iron phosphate battery technology, which doesn’t use nickel or cobalt used in common lithium-ion batteries.

Boosting infrastructure

While the federal government has allocated some $390 billion to clean-energy initiatives, including solar, wind, hydrogen and carbon capture, as part of the Inflation Reduction Act, new power transmission lines and pipelines must be built to take full advantage of the funding, Coleman said.

“All of these sources, — solar, wind, hydrogen and carbon — are going to be extremely dependent on developing linear infrastructure, power lines and pipelines,” he said.

Coleman said to reach the clean-energy goals, the project permitting process must be accelerated, noting that provisions in the recent debt-ceiling deal in Congress include provisions to set time guidelines for environmental reviews.