American EV subsidies threaten most new battery capacity in Europe with Germany the biggest loser because of Tesla
The billions in federal EV subsidies tucked into President Biden's Inflation Reduction Act (IRA) are putting Europe's vast new battery production capacity at significant doubt. It recently became clear that Tesla may not go ahead with a planned expansion of its Giga Berlin battery factory, for instance, as "contrary to original plans, the US group has relocated further production steps to the USA because the business conditions there are more favorable due to tax incentives."
In fact, a whopping two-thirds of the future battery factories in Europe are now at risk, according to a leading Transport&Environment think-tank there. Its analysis shows that 68% of the 50 lithium-ion battery factories that were scheduled for building in Europe by 2030 are "at risk of being delayed, scaled down or not realised if further action is not taken."
That's a staggering 1.2 TWh of future battery capacity that may never go online, putting European automakers at significant disadvantage before their Chinese or American counterparts. Needless to say, Germany stands to lose the most from the made-in-US federal subsidies as it has nearly 500 GWh of battery capacity in the pipeline, of which just 96 GWh are now materializing with certainty.
This explains why, after the IRA tax credit details became known, Europe at one point explored suing the US for unfair trade practices under the WTO agreements. Instead of a lawsuit, however, it launched an exploratory group and on March 14 the European Commission is coming out with a Net Zero Industrial Act of its own, where it will detail its response to the made-in-US tax credits.
The Treasury Department, in its turn, also chose March for issuing its final guidelines on battery assembly locations and raw material sourcing requirements for receiving federal subsidies, in order to better address the IRA frustration of America's international partners.