Italy cuts funding for Stellantis, Mercedes EV battery factory

The Italian government is cutting funds to a Stellantis and Mercedes-Benz electric-vehicle battery plant after the project faced delays due to a slowdown in EV demand in Europe.

The government will reallocate €200 million ($223 million) in European Union funds it had earmarked for the project to build the plant in eastern Italy to other green energy initiatives, officials said.

Automotive Cells Company (ACC), a battery joint venture whose shareholders include the two automakers and TotalEnergies, had plans for three gigafactories in Europe at sites in France, Germany and Italy for a total investment of €7 billion.

In June ACC said it was halting works on the plants in Termoli, Italy and Kaiserslautern, Germany, as the company switches to lower cost batteries amid slowing demand for electric vehicles. Its factory in northern France has started production.

"We have of course to schedule the capacity increase in accordance with the cell's (demand) ramp up," Stellantis CEO Carlos Tavares said on Sept. 17 during a corporate event in Turin, Italy.

"As soon as EV sales increase in Europe, as soon as I see that I need more capacity, I will trigger the investment of the two additional plants in Germany and Italy," he said.

Stellantis will continue building combustion engines in the Termoli plant until 2028 to help mitigate the impact from the battery factory delay.

Italian Industry Minister Adolfo Urso said he would use the €200 million from the EU's post-COVID recovery funds to support separate investments consistent with Rome's energy strategy to make its economy greener.

The minister said that separate domestic state money could be earmarked should ACC be able to present a new industrial plan for Termoli at a later stage.

ACC CEO Yann Vincent said the company will resume discussions over possible funding plans with the Italian government in the first half of next year. 

"I understand Italy's decision to allocate the funds differently at this time," Vincent said. "If we come back to see them next year with a project for a cheaper battery that works, for which we have clients, we got confirmation that the Italian state will help us."

Giorgia Meloni’s government and Stellantis have been clashing in recent months after the automaker announced plans to cut jobs in Italy due to an industry-wide slow-down in demand. 

Last week, Stellantis said it is planning to halt production of the electric Fiat 500 in Turin, Italy over the next month due to a lack of orders in Europe.

A number of European companies have invested in lithium-ion battery production, but growth in EV demand is developing more slowly than some in the industry had projected, and competition is stiff from battery producers and automakers in Asia and North America.

Swedish-based Northvolt, Europe's most developed battery player, has announced plans to shrink its business and cut costs.

Reuters and Bloomberg contributed to this report