European automakers and associations urged policymakers for stronger counter-measures to boost domestic industry in response to the U.S. Inflation Reduction Act (IRA), but warned that the region should not respond with protectionism.
Under IRA rules, at least 40 percent of critical minerals in U.S.-made EV batteries must come from U.S. miners or recycling plants or mines in countries with free trade deals with the U.S., rising to 80 percent in 2027.
Although the U.S. is the EU's largest trade and investment partner, there is no dedicated free trade agreement between the two markets.
German Economy Minister Robert Habeck has said there is a chance that "de facto free-trade status" could be reached in the area of critical minerals.
But this would be little help because Europe has little industrialized supply of critical minerals for batteries and mining projects are struggling to get off the ground, one European carmaker who declined to be named told Reuters.
What Europe needs is a big-picture revamp of accelerated licensing processes and energy price relief to attract key suppliers like battery makers, the automaker said.
The European Council will meet later this week to discuss the region's response to the IRA, following from the green industrial plan laid out last Wednesday.
Habeck said on Tuesday he sensed great willingness on Washington's part to engage with Europe's concerns about the IRA but didn't provide details.
Speaking to French radio on Tuesday, Renault CEO and president of Europe's ACEA auto association Luca de Meo said: "I don't much like the word protectionism, because it leads to inflation and inefficiency."
"But I think the European community must react ... you need to find counter-measures to protect industry," he said, without elaborating.
With transport and logistics costs rising, European carmakers are already moving to localize production of EVs in the U.S., from Volkswagen's ID4 built in Tennessee to the Mercedes EQS SUV and EQE SUV produced in Alabama.
BMW plans to produce at least six fully electric models in its plant in North Carolina by 2030.
Automakers are increasingly also seeking to source batteries close to their plants -- but a large proportion of the raw materials inside them are still likely come from or pass through China, spelling trouble under IRA rules.
Rearranging supply chains to take China out of the picture is complex and would take a long time, the carmaker said.
Cars built in North America were already at an advantage via the USMCA passed under the Trump administration, which gives tax-free status to vehicles with 75 percent regional content, Germany's auto association VDA said.
"It is important to prevent U.S. practises resulting in a spiral of protectionism," it said.