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VW delays CEE battery plant, as US sweeteners lure firms over the pond

| 2023-03-08 3 min read

VW delays CEE battery plant, as US sweeteners lure firms over the pond

Reading Time: 3 minutes

German carmaker Volkwagen (VW) has put on hold its plans to open a battery plant in Central and Eastern Europe (CEE) citing better incentives offered by the US.

VW reportedly told EU officials last week that it will prioritise a battery plant in the US as it can access subsidies and loans worth EUR 9-10bn via the US Inflation Reduction Act (IRA), the USD 369bn green-tech incentive package that US President Joe Biden launched last August.

Despite the protestations of French President Emmanuel Macron in December that the IRA is “super aggressive” toward European companies, the beneficial conditions it offers are already luring European companies to invest in the US. 

Battery, auto firms urge EU for more support

After a top-level meeting in Brussels last Friday, “as part of the European Battery Alliance”, VW’s Components chief Thomas Schmall, wrote that he had discussed the framework conditions for battery cell production in Europe with EU Commissioners Maros Sefcovic, Margrethe Vestager and Thierry Breton.

Schmall wrote that as the US is gaining ground on Asia, thanks to the IRA, “Europe is more and more lagging behind. The conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming months and years,” he warned. 

Swedish battery maker Northvolt, which also attended the meeting, said it would be able to receive over USD 8bn in US subsidies for one factory, meaning it may choose the US over Germany for its next gigafactory unless Brussels provides more concrete support.

Senior officials at European battery makers told UK business daily The Financial Times that “there an absence of concrete measures” from the EU, and “we have been contacted by many US states (and) when we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe”. 

EU mulls change to state aid rules

The European Commission (EC) is now looking to loosen rules on state aid and is reassessing whether to deploy EU-level subsidies, the FT wrote. However, an early draft of the Net Zero Industry Act, which will be published next week, has fallen short according to industry executives who spoke to the FT.

VW Chief Financial Officer Arno Antlitz last week said the carmaker already had plans for a plant in the US, but the new subsidies had accelerated its plans. Antlitz said the IRA gives Volkswagen “a tailwind in terms of speed and consequence”, and provided a possibility to “enlarge its global footprint even faster in the US with the IRA”.

Schmall said VW is committed to its plan to build more cell factories in Europe. “But for this we need the right framework conditions. That is why we wait and see what the so-called EU Green Deal will bring.” 

VW official says EU must match US

According to VW “what Europe needs most is an ‘IRA matching clause'”. In a Linkedin post, Schmall underlined four measures that would help Europe achieve parity with the US. 

Firstly, “a revised public state aid program on eye level with China and North America”,  Schmall wrote. Secondly “a strong strategy for critical raw minerals: 80% of cell costs are defined by raw material prices. Resilient supply chains are vital for competitiveness”.

Thirdly, Schmall demanded “green energy… of below 7 Cent/kwh”, and finally, the VW official underlined the importance of “a strong focus on the equipment industry for cell manufacturing”. 

“Above all, we need speed, Schmall wrote, adding that “the IRA is in force and is already delivering results”. He confirmed that VW will build two gigafactories in Salzgitter, central Germany, and Valencia, eastern Spain, but added that “we are making much faster progress in other regions, notably in the North American region. In the coming days, months and years, important location decisions will be made.” 

“My hope is that politicians in Brussels and the European capitals will now quickly pull the lever and enable companies to build up the industry of the future here,” Schmall underlined.

Lobby group Transport & Environment warned this week that more than two-thirds of European battery projects were at risk of being cancelled, delayed or cut back, the FT noted.