Germany, Europe’s biggest economy and the most reliant on Russian gas imports, has witnessed industrial output fall due to high energy costs caused by shortages. Notably, Volkswagen says that EV battery plants are ‘practically unviable’ in EU due to soaring energy costs.
Volkswagen’s CEO stated that due to rising energy costs, electric vehicle battery facilities in the European Union are “practically unviable” at the present.
According to Thomas Schaefer, Chief Executive Officer of Volkswagen AG’s name brand, additional investment in critical industrial projects such as battery cell plants in Germany and the EU is becoming increasingly untenable due to policymakers’ incapacity to manage escalating long-term energy prices.
Since the conflict in Ukraine and the imposition of Western sanctions on Moscow, Europe, particularly Germany, has been rocked by the decline of Russian energy supplies to the union.
For the majority of 2022, the EU, the United Kingdom, and the United States are all experiencing a catastrophic energy shortage.
Germany, Europe’s biggest economy and the most reliant on Russian gas imports, has witnessed industrial output fall due to high energy costs caused by 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 applauded the French and German economic ministers, Bruno Le Maire and Robert Habeck, for their collaborative industrial policy endeavor the other week, but said it “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
The European Union’s economic situation has been exacerbated by the Biden administration’s Inflation Reduction Act, which had been enacted this summer.
The new climate and tax legislation intends to increase American production of electric vehicles in the United States while decreasing dependence on foreign nations such as China for battery components and materials.
Officials from the European Union have protested that the subsidies and limits harm European businesses and breach World Trade Organization regulations by discriminating against non-American firms.
Both France’s and Germany’s economic ministers oppose Biden’s economic plan, which they see as partially undoing decades of past trade practices with its partners.
Le Maire contrasted America’s industrial strategy to that of communist China, whose government provides significant subsidies to home firms in order to encourage 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 remarked that if no consensus is achieved on both sides of the Atlantic about the new US strategy, European authorities must move promptly and aggressively to bolster European business.
In response to Biden’s push, French President Emmanuel Macron has been rallying support across the EU for a “Buy European Act,” but Germany’s Chancellor Olaf Scholz stated that he would attempt to negotiate with Biden at the EU-US Trade and Technology Council meeting on December 5 to mitigate the effects of his new act.
Germans Hesitant to Enter Trade War With Biden Administration
According to Bloomberg, Germans believe that inciting a trade conflict with the United States would be a strategic blunder when the EU is at odds with Russia.
“It produces no winners, only losers,” German Finance Minister Christian Lindner remarked last week during a press conference held by the Sueddeutsche Zeitung newspaper.
“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.
In reaction to the new American strategy, the chancellor has not, however, ruled out the possibility of expanding EU business subsidies.
Volkswagen Demands More From EU Policy Makers to Keep Europe Attractive to Business
The EU’s initiatives do not place enough emphasis on “the short-term ramp-up, scaling and industrialization of production,” according to Schaefer, who criticizes “outdated and bureaucratic state-aid rules”
The revelations follow Volkswagen’s earlier this year stated plans to have six EV battery facilities operational around the EU by 2030.
They will be manufactured by its battery subsidiary PowerCo, which started construction on its principal facility in Germany in July 2022 after negotiating a $3.1 billion cathode material production joint venture with Umicore in early fall.
“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.