Europe Gets A Lifeline In Its Fight Against President Biden's Inflation Reduction Act

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An EU-funded pool of money has been suggested to give European automakers a chance to compete with Americans on EV pricing.

President Biden's Inflation Reduction Act (IRA) was passed in August 2022, but the ramifications have been so widespread that Europe is looking for a way to counter it with tax credits of its own, and the European Investment Bank wants to help by setting up a self-sustaining fund.

The IRA is a complex piece of work, but the big takeaway for the auto industry is the aim of ensuring raw materials used in EV batteries are sourced in America. From an automotive manufacturing standpoint, the main objective has always been clear. President Biden wanted to cut America's reliance on China, and it's working. In fact, it's working too well, as the countries that form the European Union (EU) are investigating new ways to safeguard their piece of the industry.

This latest development comes via Reuters, quoting an interview in Der Spiegel with the president of the European Investment Bank, Werner Hoyt.

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"We hear from many of our corporate clients that they are under a lot of pressure to move their production and especially their development departments to the US," said Hoyer. "In principle, every investment project that has not yet received final approval is currently being put to the test."

American-made cars like the Tesla Model 3 qualify for tax breaks in the EU, but cars made in the EU don't qualify for the $7,500 tax credit in the USA. The Audi Q8 e-tron made in Belgium is one example. Europe and other regions have threatened some sort of retaliation, and this fund is the start of the rest of the world's effort to maintain a decent level of competition.

The European Investment Bank will not take responsibility for filling the fund with cash. Instead, it will rely on financial guarantees provided by the EU or its member states. The fund would be similar to the various national emergency funds established during the COVID-19 pandemic.


At least the USA had the foresight to provide a $430-billion act to make the transition smoother, and there is no outright federal ban on internal combustion in the works just yet.

Hoyer's proposed fix is an interesting idea considering numerous automakers still have to announce plans for the inevitable electrification of everything. If the EU's incentives are better than those provided in the USA, the IRA might not be quite as successful as initially planned, but it could throw many automakers' plans for new manufacturing plants into turmoil as they reassess what is best for their customers.

This latest development follows shortly after Tesla announced it will cut German battery production because the IRA's incentives were too good to pass up. On the same day, Audi's CEO, Markus Duesmann, confirmed that it and VW are also considering building a factory in the USA for the same reason.

While the IRA is undoubtedly doing its job - thousands of jobs being created, for example - some restrictions can be considered unfair toward the EU, and this fight is far from over.


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