VW reconsiders EV battery factory location lured by US$10 billion in US government subsidies

A recent analysis showed that 68% of future EV battery factory capacity in Europe is under threat from the made-in-US subsidy requirements in the Inflation Reduction Act. As if to bring the point home, a new report claims that VW is now diverting a big battery factory project from Eastern Europe to the US.

Apparently, representatives of VW and other potential EV battery makers met with European Commission officials last week in Brussels, and laid out their argumentation why they would be putting their Europe-based projects on hold in favor of the US. VW, in particular, calculated that it will receive up to US$10 billion from the US government over the IRA's 10-year subsidy span.

The incentives include US$0.35/kWh of produced battery capacity, as well as a similar assembly subsidy. Analysts recently calculated that Tesla will be getting up to $3.5 billion annually once its new 100GWh 4680 battery project in the Nevada Gigafactory is fully operational, and will be able to procure some of the cheapest EV batteries thanks to the government's largesse.

VW and other non-US automakers obviously don't want to be at a disadvantage before their Chinese and American competitors, so they have little choice but to pick the US as their next battery factory destination. Another European battery maker - Northvolt - calculated that it will get US$8 billion from the US if it builds its factory there instead of realizing its European project. According to one other executive, they have been "contacted by many US states and they all highlight the IRA. When we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe."

The Net Zero Industry Act - an answer to the IRA that the European Commission is expected to reveal next week - is rather short on specifics, said a VW exec who has seen the draft proposal. If Europe doesn't come around to dole out subsidies in a similar to the US fashion, it would risk losing billions upon billions of future battery investment and fall woefully behind in the EV game, they added.

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