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. Payouts would go to the most efficient and sustainable batteries.
The EU also wants the UK to commit to a clause excluding another extension in three years’ time.
An EU official said: “The problem we face right now is that we don’t have enough batteries or we don’t have enough chemicals. We want these batteries to be built in Europe or in the UK. But we’re not there yet.” The aim is that the EU industry can source 70 per cent of its needs domestically.
Carmakers including Renault and Mercedes-Benz welcomed the move.
“We just need a little bit more time,” said Luca de Meo, chief executive of Renault and president of European carmakers’ group Acea.
“It doesn’t mean that one day this thing will not be enforced, because it’s part of the agreements that were signed between the EU and the UK,” he added.
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.
Complicated rules of origin dictate that 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.
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.”
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 granting a delay risked creating a precedent that could be exploited by London to argue for other changes to the deal. It has several battery plants in the works, including one by China’s Envision AESC and Taiwan’s ProLogium. The €5.2bn project is set to receive a €1.5bn state subsidy.
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 will happen quickly.
The UK government said: “We have a shared ambition to grow domestic electric vehicle manufacturing and battery supply chains, and this proposal is a positive step towards providing long term certainty to the industry while ensuring it remains globally competitive.”
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.
Additional reporting by Sarah White, Jim Pickard and Richard Milne
