Nearly 70% of Europe's battery factory plans imperiled by US subsidies – report

More than two-thirds of Europe's planned lithium-ion battery production capacity is at risk of being delayed, scaled down or scrapped amid a push by the U.S. to offer billions of dollars in tax credits for domestic manufacturing, according to a new report.

Sixty-eight percent of Europe's battery gigafactory pipeline out to 2030 might not be realized as companies weigh shifting their investments across the Atlantic in pursuit of U.S. subsidies, campaign group Transport & Environment, or T&E, said March 6.

Europe's pipeline includes about 50 proposals with production capacity of 1.8 TWh. Gigafactories planned in Germany by Tesla Inc. and Northvolt AB are among those classified as being at medium or high risk due to the $369 billion in support offered by the U.S. Inflation Reduction Act, or IRA.

The historic climate law is "changing the rules of the game fast," T&E said, pointing to the $150 billion available for battery components and metals manufactured in the U.S.

Officials in the European Union have raised significant concerns about the Inflation Reduction Act's potentially market-distorting effect on clean-tech industries and have responded with their own Green Deal Industrial Plan to speed up investment in Europe.

T&E said the EU's plan "does not have the same targeted scope as the U.S. IRA," adding that China's long-held dominance in the battery supply chain also risks thwarting the bloc's domestic manufacturing effort.

"EU battery manufacturing is caught in the crossfire between America and China," said Julia Poliscanova, senior director for vehicles and e-mobility at T&E. "Europe must act or risk losing it all."

Investor flight from Europe to US

Several major battery cell manufacturers are already being lured into expanding in the U.S. market, driven by the "simplicity, volume and bankability" of the production credits available in the Inflation Reduction Act, according to T&E.

Automaker Tesla, which previously said it wants to turn its gigafactory in Berlin into the world's largest electric vehicle battery plant, became one of the first companies to announce a strategic shift in production due to America's new incentives.

A Tesla spokesperson told Reuters in February that the company's battery cell production is focused for now on the U.S. due to the framework created by the IRA and that it might even make components in Berlin to ship across the Atlantic. T&E assessed the Berlin site as being at medium and high risk of being delayed or deprioritized by Tesla, which did not respond to an emailed request for comment.

Executives at another manufacturer, FREYR Battery, said Feb. 27 that capital spending on a planned Norwegian gigafactory, known as Giga Arctic, will continue at a "measured pace" while project development on its U.S. facility, known as Giga America, accelerates.

"There's great opportunities to monetize these tax credits [in the U.S.]. And as you know, with the IRA, a lot of the monetization options have been simplified relative to past laws. So we're looking forward to that," CFO Oscar Brown said during an earnings call. "We've talked to several of the commercial banks in the U.S. and other investors on how to do this."

Sweden's Northvolt, which already has an operating plant in its home market and is planning another in Heide, Germany, might also prioritize the U.S. over Europe, CEO Peter Carlsson told German newspaper Frankfurter Allgemeine Sonntagszeitung in October 2022.

The Heide facility is deemed as being at medium risk by T&E, which pointed out that although the site has the financial backing of German automaker Volkswagen AG, it is yet to start construction. Northvolt declined to comment.

In total, 16% of Europe's announced battery cell production capacity for 2030, equating to 285 GWh, is at high risk of not coming online, T&E said. A further 910 GWh, or 52% of the total, is at medium risk. The group's methodology incorporates several factors, including whether the sites have secured funding and permits, any investments or relationships with automakers, and existing ties or partnerships in the U.S.

EU support must be 'simple and accessible'

T&E called on the EU to prioritize the battery value chain in its Green Deal Industrial Plan, for instance by providing production targets, tax breaks and grants that would enable the industry to scale up.

The group added that Europe needs to simplify permitting and approval processes for battery production projects — a central part of the EU's Net-Zero Industry Act that is expected in draft form March 14 — and to make financial support "as simple and accessible" as the Inflation Reduction Act.

A leaked draft of the Net-Zero Industry Act, reported by the Financial Times on March 3, suggests the EU will set a target of at least 40% for domestic manufacturing of clean technologies by 2030, with much higher targets for certain sectors.

The EU's Critical Raw Materials Act, which will be presented in draft form alongside the Net-Zero Industry Act, can also be a "vital part of the answer," T&E said. The act will set high-level supply targets and contain a special focus on refining and processing.

FREYR is optimistic that the EU's response to the incentives being offered by the U.S. will "improve significantly the economics of Giga Arctic so that it becomes closer to what we're seeing under the IRA," CEO and co-Founder Tom Einar Jensen said.

"But to expect that you'll have a one-to-one response to the IRA is probably not something that we are too hopeful of," Jensen said. "But the jury is still out."

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