Volkswagen’s CEO wrote that electric vehicle battery plants in the European Union are “practically unviable” at this moment due to soaring energy costs.
Further investment in key industrial projects such as battery cell plants in Germany and the EU are becoming more unfeasible due to policymakers inability to control skyrocketing long-term energy prices, according to the Chief Executive Officer for Volkswagen AG’s name brand, Thomas Schaefer.
Europe, and especially Germany, has been devastated by the loss of Russian energy exports to the bloc since the war in Ukraine and the Western sanctions on Moscow.
The EU, the UK, and the United States have all been facing a serious energy crisis for most of 2022.
Europe’s largest economy and the most dependent on Russian gas imports, Germany has seen its industrial output tumble due to high energy prices due to shortages.
Schafer warned that “the USA, Canada, China, Southeast Asia, and regions like North Africa are forging ahead.”
“Unless we manage to reduce energy prices in Germany and Europe quickly and reliably, investments in energy-intensive production or new battery cell factories in Germany and the EU will be practically unviable,” Schaefer posted on LinkedIn on Nov. 28.
“The value creation in this area will take place elsewhere.”
Schaefer praised the joint cooperative industrial policy effort between the French and German economics minsters, Bruno Le Maire and Robert Habeck last week, but said their plan “falls short in crucial areas and does not address the envisaged priorities.”
EU’s Economic Woes Compounded By Energy Costs, Changes to American Trade Policy
Europe’s economic crisis has also been compounded by the Biden administration’s Inflation Reduction Act, which was passed over the summer.
The new climate and tax law aims to boost domestic production of electric cars in the U.S. and reduce reliance on foreign countries like China for battery components and materials.
European Union officials complained that the subsidies and restrictions also hurts European companies and violates World Trade Organization rules by discriminating against non-American companies.
The economic ministers of France and Germany both are opposed to Biden’s economic agenda and view them as partially reversing decades of previous trade policies with its allies.
Le Maire compared the American industrial policy similar to that of communist China’s, whose government offers major subsidies to local companies to boost domestic production.
“China tipped into this globalization a long time ago with massive state aid exclusively reserved for Chinese products. Right before our eyes, the U.S. has tipped into this new globalization to develop its industrial capacity on US soil,” Le Maire said.
Habeck stated that European authorities need to act quickly and decisively to strengthen European industry, if no compromise is reached regarding the new U.S. policy on both sides of the Atlantic.
French President Emmanuel Macron has been drumming up support throughout the EU for a “Buy European Act,” in retaliation to Biden’s move, but Germany’s Chancellor Olaf Scholz said that he would try to negotiate with Biden at the Dec. 5 meeting of EU-US Trade and Technology Council to alleviate the effects of his new act.
Germans Hesitant to Enter Trade War With Biden Administration
The Germans believe that provoking a trade dispute with the United States would be a strategic mistake while the EU is in a conflict with Russia, reported Bloomberg.
“It produces no winners, only losers,” said German Finance Minister Christian Lindner at a press conference hosted by the Sueddeutsche Zeitung newspaper this week.
“The approach from my point of view is to talk to the US—the goal is not to hurt the Biden administration,” said Linder, an opponent of the proposed “Buy European Act.”
“It’s an opportunity to talk about new transatlantic free trade,” he continued.
However, the chancellor has not ruled out the idea of increasing EU subsidies to business in response to the new American policy.
Volkswagen Demands More From EU Policy Makers to Keep Europe Attractive to Business
Journalists and guests look at the all-electric ID. Buzz at its world premiere in Paris, France, on March 9, 2022. (Benoit Tessier/Reuters)
The EU’s programs don’t focus enough on “the short-term ramp-up, scaling and industrialization of production,” Schaefer said, criticizing what he called “outdated and bureaucratic state-aid rules.”
The statements come after Volkswagen announced plans earlier this year to have six EV battery factories up in running across the EU by 2030.
They will be produced under its its battery company PowerCo, which began construction on its main plant in Germany in July 2022 after signing a $3.1 billion joint venture with Umicore in early fall for cathode material production.
“We have no time to lose. The EU urgently needs new instruments to avert insidious de-industrialisation and to maintain Europe’s attractiveness as a location for future technologies and jobs,” Schafer said.