European industry pivots to US as Biden grant sends 'dangerous signal'

European industry pivots to US as Biden grant sends ‘dangerous signal’

Northvolt, Europe’s great hope in the global battery wars, started life as a continent-centric start-up. From now on, the Swedish group, supported by Volkswagen, BMW and Goldman Sachs, is turning to the United States to develop its production.

The reason for the pivot is the Inflation Reduction Act (IRA). Landmark U.S. green technology legislation, signed into law in August, would subsidize a U.S. factory about $600 million to $800 million, according to Northvolt. That compares to €155m in incentives on the table from Germany.

The IRA “is shifting a lot of momentum from Europe to the United States,” Northvolt chief executive Peter Carlsson told the Financial Times, adding that it didn’t just affect European companies. “There are new Asian players reallocating their strategic plans and investments to North America,” he said.

The combination of the Biden administration’s $369 billion package and high energy costs in Europe, where even after recent cuts, gas prices remain five times more expensive than in North America, ring a bell. alarm in EU capitals.

“I think we need a European wake-up call on this,” French President Emmanuel Macron told leaders of domestic industrial firms such as glassmaker Saint-Gobain and cement maker Lafarge in a speech last week.

German Economy Minister Robert Habeck called the US support “excessive” and “sucking European investment”.

President Joe Biden speaks at an event celebrating the passage of the Cut Inflation Act
President Joe Biden speaks at an event celebrating the passage of the Cut Inflation Act © Anna Moneymaker/Getty Images

The EU has accused Washington of breaking World Trade Organization rules and set up a task force with the Biden administration to resolve their differences. He has called for changes to nine provisions of the legislation involving subsidy programs totaling $231 billion, arguing they create a “race to the bottom” on business subsidies.

Brussels estimates that the EU must increase its annual investments by 520 billion euros over the next decade to meet its targets for reducing carbon emissions and protecting the environment.

As the IRA affects manufacturers in areas ranging from advanced machinery to heavy industry, EU leaders are particularly concerned about the impact on the automotive sector. Only electric cars made largely with parts from North America and assembled there will qualify for the $7,500 consumer tax reduction.

Europe is home to more than a quarter of global electric vehicle production and 20% of the supply chain, according to the International Energy Agency. The United States accounts for only 10% of electric vehicle production and 7% of battery production capacity.

Luisa Santos, deputy chief executive of BusinessEurope, a pan-European lobby group, said the US legislation had sent a “dangerous signal” that could encourage other jurisdictions to take protectionist action.

Yet far from offering to extend the break to EU vehicles, Katherine Tai, the Biden administration’s top trade official, told the FT that the EU should introduce more subsidies.

Katherine Tai, the top trade official in the Biden administration
Katherine Tai, the Biden administration’s top trade official, expressed “full confidence” in finding a solution © Bill O’Leary/POOL/AFP/Getty Images

Although she expressed “full confidence” in finding a resolution, it remains unclear what concessions the United States could make without involving Congress, which is unlikely to reopen the act.

Carlos Tavares, boss of Franco-Italian carmaker Stellantis, which is also home to major US brands like Chrysler, is among leaders who have publicly called on Europe to consider reciprocal measures or change its rules. State-funded subsidies for the purchase of electric cars in France, for example, apply to all vehicles, regardless of their origin or manufacturer.

A quick fix for electric vehicles is possible. Last week, three members of Congress introduced a bill that would delay the IRA requirement for North American supply chains by three years, as many American automakers will struggle to make the necessary changes. by then.

EU officials are reluctant to match US subsidies or, according to one official, “do things that are inconsistent with WTO rules and state aid”.

“We designed our rules to be open and give no preferences to European companies: now we are victims of our own purism,” they said.

German Finance Minister Christian Lindner told the FT: “We will not prevent European companies from divesting and moving to the United States. . . by entering into a competition for subsidies, but by creating really excellent conditions for investing in Europe.

By contrast, France has been pushing for the EU to adopt its own “European Buying Act” as it seeks to tip the rules of the game in its favor.

“Europe cannot be the only place in the world that doesn’t have a Buy European Act and the only place in the world where you still have a state aid system that lays down rules as if it doesn’t there was no outside competition,” Macron said last week. .

The European Roundtable for Industry, a business lobby group, argued that Washington’s carrot-based approach could help the United States leapfrog Europe in its adoption of green technologies. He said regulatory uncertainty in the EU was hampering green technology, calling for a “concerted effort” to speed up the approval of renewable energy investments.

Spain’s Iberdrola, one of the world’s largest energy companies, brings US investment to almost half of its 2023 global total to 25, compared to 23% in the EU. Ignacio Galán, executive chairman, told the FT that the United States was now a “much” more attractive place to invest.

For renewable-produced hydrogen, for example, the United States was providing about $100 billion in support under the IRA, while the EU was only offering $5 billion, he said. he declares.

The pressure is compounded by the higher cost of energy in the EU. France’s Safran, a leading supplier of aircraft engines and other parts, is among the companies rethinking their investment plans.

French Safran rethinks its investment plans
French Safran is rethinking its investment plans © Remy Gabalda/AFP/Getty Images

He had planned a second factory near Lyon focused on lightweight carbon brakes which was to become a research center for the technology. But now it is diverting more of its landing gear production to Asia and the United States as it postpones any decision on the new French factory for at least another 18 months.

“My duty is to ensure that any investment is economically viable,” CEO Olivier Andriès said recently. Despite efforts to hedge against price hikes, Safran’s electricity costs in France were on track to nearly quintuple between 2019 and 2023, Andriès said, while they had remained stable in the United States and France. Malaysia, where the group also produces carbon brakes.

“It’s not just about getting through the winter. There is a much deeper issue at stake, it is about the competitiveness of France and Europe,” he said.

Reporting by Sam Fleming and Andy Bounds in Brussels, Richard Milne in Stockholm, Sarah White in Paris, Guy Chazan in Berlin and Barney Jopson in Madrid

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