As the US races ahead, Europe frets about battery factory subsidies

The European Union is trying to assemble the building blocks to produce electric cars, but subsidies are luring companies to the United States

Jack Ewing & Melissa Eddy

European leaders complained for years that the United States was not doing enough to fight climate change. Now that the Biden administration has devoted hundreds of billions of dollars to that cause, many Europeans are complaining that the United States is going about it the wrong way. That new critique is born of a deep fear in Germany, France, Britain and other European countries that Washington’s approach will hurt the allies it ought to be working with, luring away much of the new investments in electric car and battery factories not already destined for China, South Korea and other Asian countries.

That concern is the main reason some European leaders, including Germany’s second-highest-ranking official, Robert Habeck, have beaten a path to Vasteras, a city about 60 miles from Stockholm that is best known for a Viking burial mound and a Gothic cathedral.

Officials have been travelling there to court one of Europe’s few homegrown battery companies, Northvolt. Led by a former Tesla executive, Northvolt is a small player in the global battery industry, but European leaders are offering it hundreds of millions of euros to build factories in Europe. Habeck visited in February to lobby the company to push ahead on its plan to build a factory near Hamburg, Germany. The company had considered postponing to invest in the United States instead.

 “It’s definitely attractive to be in America right now,” Emma Nehrenheim, Northvolt’s chief environmental officer, said in an interview last month in Vasteras. Northvolt declined to comment in detail on the discussions about the Hamburg plant, which the company committed to in May. The tussle over Northvolt’s plans is an example of the intense and, some European officials say, counterproductive competition between the United States and Europe as they try to acquire the building blocks of electric vehicle manufacturing to avoid becoming dependent on China, which dominates the battery supply chain.

Auto experts said that the tax credits and other incentives offered by President Biden’s main climate policy, the Inflation Reduction Act, had siphoned some investment from Europe and put pressure on European countries to offer their own incentives.

The United States has provoked a “massive subsidy race,” Cecilia Malmstrom, a former European trade commissioner, said during a panel discussion last month at the Peterson Institute for International Economics in Washington. She called on leaders to “jointly invest in the green transition and not compete against each other.”

Biden officials have argued that US and European policies are complementary. They have noted that the government and private money going into electric cars and batteries would lower prices for car buyers and put more emission-free vehicles on the road.

US officials add that construction of battery factories and plants to process lithium and other materials is booming on both sides of the Atlantic Ocean.

Efforts by governments to promote electric vehicles “will spur a degree of technological innovation and cost cutting that will be beneficial not only to Europe and the United States, but to the global economy and to our global effort to meet the challenge that climate change presents,” Wally Adeyemo, the deputy Treasury secretary, said in a recent interview. 

The Biden administration has also been talking with European officials about allowing cars made from European battery materials and components to qualify for US tax credits. And the administration has interpreted the IRA, which Biden signed in August, to leave room for producers in Europe and elsewhere to benefit.

©2023 The New York Times News Service