Europa Car Companies Investing Heavily in the United States

German automaker Volkswagen recently announced plans to build a pure electric vehicle (EV) battery factory in Canada. Encouraged by the US Inflation Reduction Act (IRA), which provides tax incentives for businesses to take action on climate change, Volkswagen has shelved plans to build six battery factories in Europe and has shifted its investments towards the US. In addition, other European automakers, such as BMW and Stellantis, have also shifted their investments to the US, and the risk of factory outflows from the EU is increasing.

“There is no need to rush to make decisions before we understand the investment environment in Europe,” said Thomas Schmoll, a member of Volkswagen Group’s Board of Directors for Technology, at a press conference in Salsgitter, northern Germany, on March 13. Three hours later, Volkswagen announced plans to build a factory in Ontario, Canada, to produce pure electric vehicle battery packs. The plan is aimed at meeting the ever-increasing demand for pure electric vehicles in the US.

Schmoll said, “We have decided on the investment target based on 200 operating indicators such as construction costs and labor, and the Inflation Reduction Act, which has invested a total of 369 billion US dollars in combating climate change, is undoubtedly a decisive factor.” The new plant’s investment has not been made public, but it is estimated that Volkswagen will enjoy up to 10 billion euros in incentives.

EU worries about factory outflows

In March 2021, Volkswagen announced plans to build six large-scale battery factories, referred to as “Gigafactory,” in Europe by 2030, with a total annual output of 240 gigawatt-hours (GWh). This quantity could be used by 3 million ordinary pure electric vehicles. As of now, three locations have been decided, including Salsgitter and Valencia, Spain, as well as a joint venture with battery giant Northvolt in Sweden.

“The location of the fourth Eastern European factory will be determined soon,” said Volkswagen Group CEO Oliver Blume at the temporary shareholder meeting in December 2022. However, Volkswagen later decided to “shelve” the battery plan in Europe.

Although Volkswagen has not changed its 2030 target of 240 GWh of battery production in Europe, it has indicated that the investment decision for the fourth plant will be postponed until 2026. The number of factories was changed to “not necessarily six”.

Volkswagen had originally considered the measures taken by the EU Commission to counter the Inflation Reduction Act, which was pushing for regional investment. But by early March, Schmoll, who had finished discussing with EU authorities, expressed his dissatisfaction on SNS (social networking sites), saying, “Europe is gradually falling behind, and it may lose to its competitors in the coming months ~ years of investment,” implying his dissatisfaction.

BMW will also build new factories

Not only Volkswagen, but many European companies have shifted their investments to the US after the Inflation Reduction Act passed in August 2022. In particular, investments related to pure electric vehicles stand out. BMW will invest 1 billion US dollars in South Carolina, USA, to set up production equipment for pure electric vehicles, and 700 million US dollars to build a battery factory. The company will also build a battery factory in Mexico.

European Stellantis announced at the end of February that it will set up a powertrain equipment for pure electric vehicles in Indiana, USA. The company will sell 25 pure electric vehicles in the US before 2030, and increase the proportion of pure electric vehicles in the total new car sales to 50%.

Japanese companies are also actively investing in batteries in North America. Honda announced in August 2022 in partnership with LG New Energy to build a battery factory in the US. The annual capacity is 40 GWh, and production is expected to start in 2025.

Volkswagen announced on March 3 that it will invest 2 billion US dollars to build a manufacturing plant in South Carolina, USA, for the SUV brand “Scout” remade as a pure electric vehicle. Blume said at the 2022 annual financial results briefing on the 14th, “Enhance competitiveness through investment in future areas,” revealing a plan to invest 18 billion euros globally, focusing on pure electric vehicles, by 2027.

Although Northvolt and Volvo of Sweden have not yet decided to invest in the US, there are not a few European companies showing a positive attitude. If the current situation continues, there may be a situation where, in addition to industrial hollowing out, the title of environmentally advanced region will also be taken away by the US.