Report: Volkswagen Attempts to Create Subsidy Bidding War

Matt Posky
by Matt Posky

Volkswagen is reportedly pausing plans to build a battery plant in Eastern Europe so it can prioritize construction in the United States. Though the situation could be more accurately described as VW notifying EU officials that the U.S. is offering an estimated €10 billion in US incentives as part of the Biden administration’s Inflation Reduction Act (IRA).

It’s not the first time something like this has happened. Volkswagen similarly delayed decisions on where to build a battery plant in December of 2022, telling EU leadership that the Czech Republic, Hungary, Poland, and Slovakia all looked good – but that it wanted to consider its options. This time around, it’s being a little clearer by stating that the U.S. is offering sweeter subsidies and tax incentives than what’s available to Europe.

According to the Financial Times, VW wants to see how the EU will respond to incentives tied to the $369 billion that’s earmarked for green projects in the so-called Inflation Reduction Act.

“Plans in North America have moved forward faster than expected and overtaken decision making in Europe,” an unnamed source told the outlet.

From FT:

The European Commission, which will next week publish a Net Zero Industry Act as part of its response to the US green scheme, is looking to loosen rules on state aid and is reassessing whether to deploy EU-level subsidies. But an early draft outlined last week has fallen short, according to industry executives.
A senior executive at another European battery maker present at last week’s meeting, which took place in Brussels and that competition commissioner Margrethe Vestager attended, said: “It looks pretty bad. There was an absence of concrete measures.”
Another executive said: “We’ve been contacted by many US states and they all highlight the IRA. When we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe.”
The European Commission said on Wednesday that it did not comment on individual decisions taken by companies.

While Volkswagen hasn’t made any final decisions regarding the location of its North American or European battery plants, it has confirmed that it will indeed build more facilities. “But for this we need the right framework conditions. That is why we wait and see what the so-called EU Green Deal will bring,” the company explained.

The automaker believes it’s making much faster progress in the United States, which feels like a roundabout way to say it’s offering more money to build there. Arno Antlitz, VW’s chief financial officer, has clarified by stating that Volkswagen always had plans to build battery factories in North America. But that new subsidies accelerated plans and made the U.S. plant a priority.

“The IRA gives us a tailwind in terms of speed and consequence, so we have the possibility to enlarge our global footprint even faster in the US with the IRA,” said the CFO.

With China and South Korea dominating global battery production, Western nations appear terrified that they’re about to see the automotive sector wither and die without localized battery production. The Biden administration has even claimed the matter is a national security issue, echoing similar calls made by the Trump administration to bring manufacturing back into the United States.

Last week, Volkswagen Group met with senior EU officials as part of the European Battery Alliance. Reports have the event attended by consequential EU commissioners like Thierry Breton, Margrethe Vestager, and Maroš Šefčovič – who were told by chemical company Umicore and the battery producer Northvolt that Europe needs to speed up its permitting process and respond to the IRA.

This week, Lobbying group Transport & Environment issued a warning that two-thirds of the planned European battery projects could be canceled, stalled, or scaled back without more help from the government. They, like VW, would also like to see the European Union moderate pricing on “green energy” so that it can be made lower than electricity sourced from fossil fuels.

We all know what this means; the industry wants more money from the tax base and special treatment. Volkswagen would like the EU to sweeten the terms of any prospective deals, similar to what it’s been doing ( with help from the German government) to help stall voting on combustion vehicle bans. In the meantime, it doesn’t appear to be above ransoming (or appearing to ransom) a battery factory or two. But that’s business and is effectively how the automotive industry has operated throughout living memory.

Volkswagen has plans to build six European battery factories offering 40GWh of capacity apiece. The first of these are to be located in Salzgitter, Germany, and Valencia, Spain, with production commencing in 2025.

“We are still evaluating suitable locations for our next cell factories in eastern Europe and North America. No decisions have been made yet. We stick to our plan to build cell factories for about 240 GWh in Europe by 2030 but for this, we need the right framework conditions. That is why we wait and see what the so-called EU green deal will bring,” Volkswagen stated.

Meanwhile, the regulatory environment in the EU has gotten a little hectic. The long-awaited combustion ban plan has hit a major snag and surveys continue to note how consumer battery acceptance has started to decline within the continent and workers' unions are pushing back against unfettered electrification over prospective layoffs. Building a factory in Eastern Europe has also become less appetizing than it would have been before the start of the Russo-Ukrainian War. Our guess is that VW had more than one reason to hold off on any upcoming battery plants. Though they still all equate to long-term financial concerns.

[Image: Vytautas Kielaitis/Shutterstock]

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Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Bufguy Bufguy on Mar 09, 2023

    @Freedmike So...if the Chinese company is Foxconn, it gets the "whatever-passes-as-conservative-these-days" seal of approval from Donald Trump and Scott Walker, but not in the case of this Chinese company. Fascinating.

    Foxconn is a Taiwanese Company, not Chinese.....Yes they do have manufacturing in China but they are owned and operated in Taiwan.....A friendly country to the US

  • Slavuta Slavuta on Mar 09, 2023

    Angela Merkel has built the 4th Reich. Germany bought entire industries all over Eastern Europe. To expand German production base they brought-in millions of migrants. But the migrants they brought did not assimilate and don't have the desire to work in the production lines. It was in 2015 and in 2023 the future "workers" not materialized. Germany started to look into Eastern Europe. Germany and EU as whole started to become a serious economic threat to US. But they had a weak link - energy source. This is why US blew the pipeline and now German companies will be working for US. While Germans can lick the paw.

    • See 4 previous
    • Slavuta Slavuta on Mar 10, 2023

      @MaintenanceCosts My suggestion to you, before you criticize anything other people say, do your research. And If you don't play chess, start practicing. Analytics is not complex thing, you just need to learn how to grab information and verify using other "dots"

      Even in the article done by people who are delusional, you can also find the truth you need. In this article, which throws s-t at Merkel's fan, I found support for what I said

      "Merkel has tended to place German profit and expediency above European principles and values. This was also the case in the eurozone crisis, when EU bailouts were cynically structured to benefit German bankers at the cost of Greek and Portuguese workers."

      Why this is delusional article? Because these people don't get - there is a war. War between US-China-EU-Turkey-UK-Russia. And it is never ending. How US will pay for military? Military is the only thing that holds US on that top branch.

      Here is another one. Economy is like connected liquid vessels. All can't be filled completely. When one gets filled, another loses the liquid. Merkel pulled the blanket and guy next to her lost some of the warmth

      "While French and Italian living standards have either stagnated or fallen, Germans are on average 20% better off than when Merkel came to power."

  • C-b65792653 I'm starting to wonder about Elon....again!!I see a parallel with Henry Ford who was the wealthiest industrialist at one time. Henry went off on a tangent with the peace ship for WWI, Ford TriMotor, invasive social engineering, etc. Once the economy went bad, the focus fell back to cars. Elon became one of the wealthiest industrialist in the 21st century. Then he went off with the space venture, boring holes in the ground venture, "X" (formerly Twitter), etc, etc, etc. Once Tesla hit a plateau and he realized his EVs were a commodity, he too is focused on his primary money making machine. Yet, I feel Elon is over reacting. Down sizing is the nature of the beast in the auto industry; you can't get around that. But hacking the Super Charger division is like cutting off your own leg. IIRC, GM and Ford were scheduled to sign on to the exclusive Tesla charging format. That would have doubled or tripled his charging opportunity. I wonder what those at the Renaissance Center and the Glass House are thinking now. As alluded to, there's blood in the water and other charging companies will fill the void. I believe other nations have standardized EV charging (EU & China). Elon had the chance to have his charging system as the default in North America. Now, he's dropped the ball. He's lost considerable influence on what the standardized format will eventually be. Tremendous opportunity lost. 🚗🚗🚗
  • Tassos I never used winter tires, and the last two decades I am driving almost only rear wheel drive cars, half of them in MI. I always bought all season tires for them, but the diff between touring and non touring flavors never came up. Does it make even the smallest bit of difference? (I will not read the lengthy article because I believe it does not).
  • Lou_BC ???
  • Lou_BC Mustang sedan? 4 doors? A quarterhorse?Ford nomenclature will become:F Series - Pickups Raptor - performance division Bronco - 4x4 SUV/CUVExplorer - police fleetsMustang- cars
  • Ede65792611 Got one. It was my Dad's and now has 132K on it. I pay my Mercedes guy zillions of dollars to keep it going. But, I do, and he does and it's an excellent vehicle. I've put in the full Android panel for BT handsfree and streaming with a backup cam.