Biden's Inflation Reduction Act Is Creating Chaos In Europe

Government / 19 Comments

Europe's biggest automotive manufacturer is more interested in America's loans and subsidies.

Volkswagen has announced that it will stop erecting EV battery plants until the European Union (EU) has a counteroffer to the USA's Inflation Reduction Act (IRA). According to the Financial Times (FT), the Volkswagen Group, which is Europe's largest automaker, expects to receive between $9 to $10 billion in subsidies and loans from the US government over the lifecycle of a factory.

The IRA was written with several goals in mind, but those applicable to the automotive industry include cutting the USA's reliance on China for EV battery components, offering incentives to Americans to get rid of their gas guzzlers, and creating more jobs.

A study by the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst estimates the act will create more than nine million jobs over the next decade. There's already proof of this, with thousands of new jobs announced shortly after the IRA was signed into law.

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Across the pond, the IRA is creating havoc. Tesla has announced it will cut battery production in Germany because of the USA's attractive tax incentives. The move forced the EU Commission to consider new rules and financial incentives, but to date, nothing has happened. The president of the European Investment Bank offered a possible solution, but it will be a while before it goes from idea to implementation.

FT spoke to insiders familiar with the matter, who summed the situation up perfectly. "Plans in North America have moved forward faster than expected and overtaken decision-making in Europe," the source said.

"We've 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," another source stated.


Volkswagen hasn't made any decision about locations in North America, and this could be a tactic used to force the EU's hand. Something similar is happening in the UK, where Tata is asking the government for financial assistance to keep Jaguar Land Rover assembly in Britain.

VW already announced a $7.1 billion investment in US-based facilities a few months before the IRA was introduced. If additional facilities were to be built in the States, it would be over and above this initial investment. Assembly of the Volkswagen ID.4 has already begun at the brand's Chattanooga factory in Tennessee.

VW's chief financial officer, Arno Antlitz, clarified that a US-based battery plant was in the cards from the start but that the IRA's subsidies made the USA more attractive. "The IRA gives us a tailwind in terms of speed and consequence, so we have the possibility to enlarge our global footprint even faster in the US with the IRA," he said.


While the IRA appears to be doing its job, several automakers and countries are not happy. It has also come under scrutiny in the USA, where ICE loyalists are annoyed (perhaps rightfully, but that's a topic for another day) that billions of taxpayer dollars are being spent on low-interest loans and tax credits for new and used EV buyers.

The most high-profile controversial IRA-related investment to date is the Ford and CATL partnership to build a new assembly facility in Michigan. Construction will only commence in 2026, and until then, Ford will continue buying battery packs for the Mustang Mach-E and F-150 Lightning from CATL directly.

Thanks to CATL's Chinese roots, some questions are being asked about the influence the Chinese government might have. This shows a general need for more understanding concerning the IRA, as Ford will wholly own the facility, and the LFP batteries will be produced under license from CATL.


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