De-industrializing Europe; lithium battery factories relocating to US
POLITICO report says that due to tight regulations and energy costs and low subsidies the EU is losing hold on battery production units that are opting to relocate to the US with largely more competitive offers
The European Union is on the path of threatening domestic battery production and investments as prospected Battery Regulations holding very strict criteria and standers might push manufacturers to relocate factories to the US that is adopting more lenient laws with increased funding.
According to a report published by POLITICO, the United States, under the Inflation Reduction Act (IRA), has been pouring cash into battery production lines and manufacturing technology, which challenges the union's attempts to "encourage battery production at home in Europe, something that's meant to be driven by the Batteries Regulation."
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The EU's new set of rules aims to verify that batteries made in the union or imported are "safe and sustainable" and provide a greener alternative, which will be tested against several criteria including their carbon footprint and recycled material included in the cells, and to relocate battery factories from China, the top lithium batteries producer and exporter, to the EU in order increase local production quota.
Despite the union's objective to encourage more local production through the new restrictions, the increasing costs they are causing are forcing producers, which are now requesting increased subsidies to remain competitive, to find a more business-friendly environment, which currently is in North America.
"We now need a bigger carrot for bringing new supply chain investments to Europe instead of the U.S. or China. One won’t work without the other,” said Chris Heron, a spokesperson for Eurometaux.
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The EU launched an incentive subsidy program back in 2017, the Battery Alliance act, with €20 billion in capital funding.
The European program had made some success in encouraging manufacturers to open local production lines, however, the fund is incomparable to the cash-pouring program launched in the US at $369 billion to back factories and produces within that are on the battery manufacturing lines.
“The incentives for manufacturing investments are the game changer,” said one auto executive to the news site regarding the US's introduced provisions.
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Top EU politicians have urged the US to reconsider the new subsidies targeting electric vehicles according to POLITICO, however, subsidies introduced to battery production pose a bigger threat to the EU than funding poured into backing EV manufacturing.
The site added that a small amount of EVs is being imported by the US from Europe despite the IRA's purpose to push EV sales, where data offered by the IHS Markit consultancy firm revealed that around 54,020 European-made EVs were delivered to the US in 2021, which represents a nearly insignificant number compared to the 2.3 million electric vehicles sold within the continent.
During a POLITICO event earlier this week, Commissioner for Internal Market of the European Union Thierry Breton stressed that there will be no changes in the US's introduced policy and that "What's done is done," referring to EU efforts to place pressure on the US to make changes to the IRA that decrease the impact on the union.
Rather, the European Commission must focus on reevaluating its subsidy policies, Breton added.
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Chile is set to sign an agreement with the EU on Friday that will allow the union to tap into the country's massive supply of lithium.
To highlight the impact of the IRA on the European market, the news outlet reported that Northvolt, a Swedish battery manufacturer, was meant to open a factory in Germany in 2025, however, the plans are not certain now.
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“Our aim is still to execute on our plans ... but the rising costs in Europe, and the massive support that [the] U.S. administration is currently offering, has made strategic expansion decisions more complex," said the director of communications and public affairs of Northvolt, Andres Thor.
In the same context, PowerCo, a battery production company owned by Volkswagen, is planning within the upcoming month to establish a plant in Canada to "primarily cover the demand of the North American market," said a company spokesperson.
"With the Inflation Reduction Act, the U.S. offers companies highly attractive incentives for investments in new plant and production," said the CEO of VW Thomas Schäfer, adding, "In the EU, on the other hand, outdated and bureaucratic state aid rules are adhered to."
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