Battery makers in the EU are being offered €3bn in subsidies as the bloc attempts to catch up with China by jump-starting the electric vehicle industry.
The European Commission proposed the sum on Wednesday as part of a prospective deal with the UK to postpone the introduction of tariffs due to hit electric vehicles traded between the two from January 1.
Maroš Šefčovič, commission vice-president, said: “By providing legal certainty on the applicable rules and unprecedented financial support to European producers of sustainable batteries, we will bolster the competitive edge of our industry, with a strong value chain for batteries and electric vehicles.”
The €3bn will come from the EU’s Innovation Fund, which gets money from sales of carbon emission permits, and be available until the end of 2026. It would be conditioned on the efficiency and sustainability of the batteries.
The EU also wants the UK to commit to a clause excluding another extension in three years’ time.
An EU official said: “We want to preserve that market access, make sure that we have a very strong position globally and also in our largest export market as China is indeed increasing its market share and it is doing so increasingly through unfair practices.”
The EU has opened an anti-subsidy investigation into Chinese producers that will take several months, and could result in punitive tariffs on Chinese EV imports.
“The problem we face right now is that we don’t have batteries or we don’t have enough chemicals,” the official said, adding: “We want these batteries to be built in Europe or in the UK. But we’re not there yet.”
Swedish battery maker Northvolt welcomed the announcement. “If used correctly, this mechanism could further fuel the race towards creating more sustainable and circular batteries, giving Europe a competitive edge while also moving towards realising the goals of the Paris agreement.”
Under the post-Brexit Trade and Cooperation Agreement (TCA) between the EU and the UK, 10 per cent tariffs would have begun on January 1.
Under complicated rules of origin, the value of parts required to be made in the UK or EU to avoid tariffs would have risen to 45 per cent on January 1. Since batteries account for 30-40 per cent of a car’s value, it in effect ruled out using power units produced outside the region.
European carmakers had warned that the tariffs would heap excessive costs on to the industry, with losses of up to €4.3bn and cuts in production of almost 500,000 electric vehicles between 2024-27.
Two European diplomats said the battery subsidy was necessary to get French agreement to the delay in imposing tariffs, which requires a treaty change.
France had warned that the delay risked creating a precedent that could be exploited by London to argue for other changes to the deal.
A qualified majority of the 27 member states must now agree to the proposal, but with Germany and about 20 other governments in favour, officials believe that is a foregone conclusion.
Under the terms of the TCA, the UK can challenge state aid given to EU industries. London has offered £500mn to Tata to build a battery plant but parliamentarians warned last week that the country remained critically short of battery manufacturing capacity.
A UK government official said that chancellor Jeremy Hunt had announced billions of pounds of support for manufacturing in last month’s Autumn Statement, including for electric car production, adding that the Europeans were playing “catch up” with Britain.
Additional reporting by Jim Pickard and Richard Milne
Source: Financial Times