8 March 2023

Volkswagen postpones planned battery plant in Eastern Europe

Volkswagen is considering moving the planned plant to North America because it expects the plant could receive €10 billion in incentives over its lifetime, the latest consequence of the Inflation Reduction Act, which offers subsidies and tax incentives for green technology to lure European manufacturers to the US.

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In August 2022, President Joe Biden signed the Inflation Reduction Act (IRA), which allocates $369 billion in subsidies for clean technology and renewable energy. The IRA includes the installation of renewable energy, hydrogen infrastructure, and electric vehicles. However, it stipulates that production must take place in the US or in neighbouring countries. For example, to receive the $7,500 tax credit, EVs must undergo final assembly in North America.

The IRA has come under criticism from European politicians who argue that the policy's focus on domestic production disregards global trade rules and tempts manufacturers to shift clean-tech investments to the US. The European Commission, which is preparing to introduce the Clean Zero Industry Act as part of its response to the US green agenda, is considering relaxing the rules governing state aid and rethinking the possibility of using Europe-wide subsidies to keep manufacturers in Europe. Volkswagen is therefore awaiting the outcome of new initiatives and possible incentives within the EU before making a final decision on the location of its factories. In addition to subsidies, other factors such as access to low-cost green energy and the availability of skilled workers will be considered. Pilsen in the Czech republic has also been evaluated as a potential location for the plant.