Volkswagen May Pause Plans For EV Battery Plants In Europe And Prioritise U.S Gigafactories To Avail Subsidies Worth Over $10 Billion

Volkswagen is considering putting on hold its plans for a battery cell factory in Eastern Europe and prioritising a proposed plant in North America where it could reap $10.54 billion in subsidies that it can under the U.S. Inflation Reduction Act (IRA), The Financial Times reported.

European automobile behemoth, which plans to invest $20 billion through 2030 in a bid to become global electric vehicles leader, warned the E.U. it is being overtaken in the race to attract gigafactory investment, especially after the U.S. administration unveiled a package totalling $369bn (£312bn) under IRA as incentives to drive the electrification of transportation (zero emissions freight and light duty vehicles).

Under the U.S. act, battery cell manufacturers will be eligible for an “advanced manufacturing production credit” worth $35 per kilowatt hour of annual capacity. For factories producing at the scale of gigawatt hours in annual capacity, that support could run to billions of dollars a plant.

The E.U. has estimated that the market for batteries will be worth as much as €250bn (£223bn) a year by 2025, and several of its member states are offering large subsidies to attract investments by carmakers and battery companies. But the subsidies on offer pale in comparison to what the U.S. offers.

In March 2021, Volkswagen announced that it would build 6 gigafactories in Europe with a total capacity of 240-gigawatt hours.

Volkswagen set up a new company PowerCo for its global battery business, including managing the value chain from raw materials to recycling. Powerco will also manage Volkswagen Group’s international factory operations, develop cell technology, vertically integrate the value chain and supply the factories with machinery and equipment. 

The first of the six plants is a Northvolt plant in Sweden, in which Volkswagen holds a 20% stake. A second in Salzgitter, Germany, will be built by 2025 with China’s Gotion High-Tech, in which Volkswagen owns 26%. It has also identified a site near Valencia, Spain, for a third plant.

“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 E.U. green deal will bring.” the company said in a statement.

According to reports, Northvolt could also prefer the U.S. over Germany for its next battery factory. The company estimates it could receive more than €8 billion in subsidies for a factory in the United States. 

Chinese, Korean and Japanese manufacturers currently dominate the global supply of batteries for electric cars. Chinese firm CATL commands about 37% of the global battery market. CATL is building factories overseas and last month agreed to license its technology to a new plant Ford Motor Co is building in Michigan.