European Competition Authorities: Is Electric Car Aid OK?

The European Commission’s competition authority has a problem:

The Commission had to launch a formal investigation into aid for a large investment project by BMW for the manufacturing of electric cars. The formal investigation will allow the Commission to gain an insight into the emerging market of electric cars, a market for which it has not examined regional investment aid before.

A subsidy is a subsidy is a subsidy, right? Apparently not…

The commission continues:

Germany plans to grant €46 million towards an investment project of €368 million at the company’s plant in Leipzig, in Saxony. The project concerns the manufacture of two models of electric passenger cars: the ‘i3’ Mega City Vehicle model, a purely battery driven electric car for urban use, and the ‘i8’ sport model, a hybrid car with a combustion engine in addition to electric propulsion. The car bodies of both models will be made of carbon fibre reinforced plastic.

The Commission acknowledges the importance of the project from the environmental and energy policy point of view, but has to assess its compliance with the said EU provisions for large investment projects. As this is the first notification of regional investment aid to electric cars and on the basis of the available data, the Commission could not immediately decide whether the electric cars planned by BMW can be defined as new products, whether the electric car market creates a separate product market or is part of the all passenger car market without distinction of the propulsion mode, whether the segmentation used in the combustion engine car market could apply to electric cars, whether the relevant geographic market is global or EEA wide etc. It therefore invites interested third parties to submit their observations.

Well, it will be nice to finally understand these electric vehicles, won’t it? Because there’s really no consensus yet on just how tiny the EV market will be in 10 years, let alone how overserved it may already be. Seriously though, considering Denmark’s generous tax breaks for EVs (including a free parking spot in pricy Copenhagen!) were just approved by the same competition commission, the BMW aid should be fine. EVs are apparently different. Sadly, the EC doesn’t actually let us see the document accompanying that approval (always be updating, guys!), so I can’t confirm my suspicion that the involvement of Better Place’s battery-swap scheme might have had something to do with it (what can I say, I’m bullish on “unlimited range” EVs).

When it comes to “regular cars,” though, the EC is a lot less ambiguous. In the same press release, the EC provides some interesting contrast

Finally, in another German regional aid case, the Commission also started a probe into a grant of € 83.7 million towards a €700 million investment project of Volkswagen Sachsen GmbH, a subsidiary of the Volkswagen group. The project aims at a fundamental change in the production process of cars in the small and medium sized segments at the plant in Zwickau, in the Chemnitz region (Saxony).

Here too, the applicable Regional Aid Guidelines require the Commission to look further into the project to check the incentive effect and the positive and negative effects of the aid. Volkswagen market share in the relevant product and geographic market (normally the EEA) exceeds 25% even before the investment and the new capacity created exceeds 5% of a market that is undergoing falling or at the best stagnant demand.

The Commission has doubts whether Germany’s suggestions for the definition of the relevant market (either a combined segment ranging between the segments A0 to B in the EEA, or a geographic market that is larger than the EEA) can be accepted. In case the market definitions cannot be established, the Commission will evaluate the aid’s incentive effect as well as its positive and negative effects on competition.

Much less money on the line, but the market data is there. Of course, US regulators used models that said our market would be back to 16m units per year within a few short years when they made the decision to bail out GM and Chrysler… but why invite those kinds of comparisons? Especially when the contrast in the EC’s treatment of EVs and “regular cars” is provocative enough.