The European Union is facing a massive car manufacturing exodus, with European carmakers threatening to leave the bloc in droves to relocate to the USA and Asia if no action is taken on energy prices and piling regulations. The EU is trying to play catch-up with the US’s Inflation Reduction Act (IRA) and Asia with its own plan to attract and keep green investors inside the bloc. Last summer, Joe Biden’s Administration pledged £304billion to cut companies’ energy costs, create new jobs and turbocharge the US’s efforts to tackle the climate crisis.
To stem the exodus, Europe is expected to lay out its own counter-offensive, known as the Net Zero Industry Act, on March 14.
The bloc is under intense pressure to act from industrialists, including Germany’s Volkswagen, which fear the EU is falling behind American and Asian competitors.
“Today, the battery sector is dominated by Asia, and while the US is catching up thanks to the IRA, Europe is falling further and further behind,” warned Thomas Schall, head of components at Volkswagen, on his LinkedIn account.
He added: “The terms of the IRA are so attractive that Europe is in danger of losing the race for the billions of euros in investments that will be decided in the coming months and years.”
Some car manufacturers like Volkswagen are reportedly considering moving their French operations from the northwestern city of Lens to the United States or Canada.
“The IRA gives us the impetus to accelerate, […] and allows us to expand our footprint in the US even faster,” insisted Volkswagen boss Arno Antlitz in early March.
Some European firms have already redirected their investments to the US. Sophie Tricaud of French battery systems specialist Forsee Power announced she set up a factory in the US last year.
She said: “The United States provides financial support for the construction of factories, as well as for the conversion of old industrial sites into gigafactories.”
With the green subsidies, her company’s costs will be covered by 30 to 40 percent. The EU had already invested in state aid in 2019 to bring in more than 700 manufacturers to the bloc.
But the £3billion plan seemed to be falling short of the mammoth £304billion promised by the Biden administration to reduce inflation in America. The US subsidies total £37 per kilowatt hour of battery produced – unrivalled support at the moment.
“These benefits help to undermine gigafactory projects in Europe,” warns the NGO Transport and Environment.
According to a report released at the beginning of March, nearly 70 percent of projects on European soil are at risk of being scrapped, put off, or slashed, because of the US’s green subsidies.
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The NGO reports Elon Musk’s Tesla has put on hold the expansion of its car manufacturers in Germany and Spain.
The car industry is now requesting Europe to provide cheaper electricity (which, at current prices, accounts for about 20% of production costs), a supply strategy for essential raw materials (such as lithium or cobalt), and an aid programme comparable to those established by Washington or Beijing in order to maintain its projects.
European employers’ associations have called on the EU to “urgently” slash energy prices and cut regulations amid the “real risk of deindustrialisation”.
After almost six months of discussions, the European Commission President Ursula von Der Leyen has laid out the bloc’s plan to “make Europe the home of cleantech and industrial innovation on the road to net zero.”
The plan will include cutting red tape, easing state aid rules, upskilling workers and finalising new trade deals with Mexico, New Zealand and Australia.
Additional reporting by Maria Ortega
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