Volkswagen warns EU that US is beating it in race to attract battery makers

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Volkswagen has told the EU it is making faster progress in building a US battery factory than one in eastern Europe because of huge subsidies made available by the White House – adding to pressure on Brussels to offer bigger green incentives.

Europe’s largest carmaker has warned the EU it is being overtaken in the race to attract gigafactory investment, after Joe Biden announced a package of help to achieve net zero aims worth a total of $369bn (£312bn) under the Inflation Reduction Act (IRA).

Volkswagen is waiting for a response from Brussels before making a decision on whether to invest in the planned eastern European plant, the Financial Times reported.

The global supply of batteries for electric cars is dominated by Chinese, Korean and Japanese manufacturers but the US, Europe and other smaller players such as the UK are scrambling to catch up. Many analysts fear that without battery factories their existing car industries will eventually wither.

The EU has estimated that the market for batteries will be worth as much as €250bn (£223bn) a year by 2025, and several of its member states are offering large subsidies to attract investments by carmakers and battery companies.

However, the IRA subsidies put support from the EU or UK into the shade. Under the US act, battery cell manufacturers will be eligible for an “advanced manufacturing production credit” worth $35 per kilowatt hour of annual capacity. For factories producing at the scale of gigawatt hours in annual capacity, that support could run to billions of dollars a plant.

Volkswagen last week met senior EU officials as part of the European Battery Alliance, a body founded by the EU. The meeting was attended by the powerful EU commissioners, Maroš Šefčovič, Margrethe Vestager and Thierry Breton, who were told by the bosses of the chemicals company Umicore and the European battery producer Northvolt that the EU must speed up its permitting process and respond to the IRA.

Thomas Schmall, a member of Volkswagen’s management board and the head of its components division, said Europe needed to introduce an “IRA matching clause”, in a post on social media about the meeting, which he also attended.

Schmall wrote: “Today, the battery business is led by Asian companies. And while the United States are catching up thanks to the Inflation Reduction Act, 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.”

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Volkswagen has planned to build six European battery factories with 40GWh of capacity each. The first two, in Salzgitter, Germany, and Valencia, Spain, are due to start production in 2025 and 2026 respectively.

Volkswagen said: “We are still evaluating suitable locations for our next cell factories in eastern Europe and North America. No decisions have been made yet. We stick to our plan to build cell factories for about 240 GWh in Europe by 2030 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.”

As well as subsidies, other factors under consideration will include access to green energy at low prices and the availability of skilled workers.

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