VW, BMW battery supplier Northvolt could reap billions from Biden's EV bill

Northvolt joined European companies putting policy makers on notice about the allure of U.S. green tech incentives, calling tax credits tucked in President Joe Biden’s Inflation Reduction Act (IRA) impossible to ignore.

The supplier of batteries to Volkswagen Group and BMW highlighted the tax credits included in the law that cover about 30 percent of cell manufacturers’ operating costs.

If the Swedish startup producing batteries in its home country were to start work now on building a similar-size factory in North America, it would be in line for about $8 billion of tax credits by the end of the decade.

“It is clearly driving the investments now at a very rapid pace,” Northvolt CEO Peter Carlsson said of the IRA in an interview with Bloomberg Television.

“Unfortunately, there is a risk that these investments are a little bit taking the momentum out of Europe.”

The comments echo those of CEOs from Siemens Energy and Volvo AB, the truckmaker, who last week lauded the U.S. subsidy framework — which includes roughly $500 billion in new spending and benefits — for having a clear 10-year funding window for tax breaks that can be implemented immediately.

Companies have largely bristled at the EU plan, which is based on a cumbersome application process and draws on money that was already pledged through various green transition programs.

As the contours of Biden’s IRA sharpen, EU leaders have done little to soothe industry’s concerns.

At a closely watched summit in Brussels last week, leaders dialed down earlier rhetoric on plans to loosen state-aid rules because it would disadvantage smaller EU states with smaller budgets. Instead, the bloc pledged to focus on improving its own policies to make European companies more competitive with the U.S. and China.

It will be weeks, if not months, before details of any new EU measures emerge, and then national governments will need to draw up rules for implementing them.

In total, the EU has more than 380 billion euros ($414 billion) of joint funds committed for the green transition through 2030.

“Unfortunately, concrete measures for greater competitiveness are still a long way off,” said the BDI, Germany’s biggest industry association.

“Attractive framework conditions for business and investment are the be-all and end-all. Companies need more speed and less detailed regulation.”

Speaking this month on a call with reporters, Siemens Energy CEO Christian Bruch said the biggest problem with the EU programs is not the size of subsidies but the speed of implementation and a lack of predictability for financing plans.

“A major problem that’s holding industry back is that we need better possibilities to plan and implement,” Bruch said.

The IRA supports companies scaling up a range of technologies — solar, wind, hydrogen — by providing funding for critical raw materials as well as financing for operating expenditures.

The law makes funding available at a fixed amount per product, reducing the risk of expanding production. And by offering funds in the form of tax breaks, they become available immediately.

The EU’s framework is seen as geared more toward research and development than the commercialization of technology. While the bloc has binding climate and clean-energy targets in place, applying for funds could take months or years — a slower process that adds up-front risk for companies.

At the same time, the lack of clarity around the EU plan is drawing criticism. Denmark chastised policy makers for drafting rules so convoluted that they had to stop issuing wind-power permits.

“More projects are now up for debate in the United States,” Bruch said. “A couple of months ago, the situation was reverse; there were more projects underway in Europe.”

The same observations are rippling through the automotive industry.

“If nothing happens in Europe, we will have to think about where we are going to put the initial investments to scale up capacity for some of the technologies in the value chain,” Volvo Trucks CEO Martin Lundstedt said in an interview this month.

Volvo is developing trucks running on batteries, hydrogen and renewable fuels and is in the process of ramping up related infrastructure. Together with Daimler Truck and Volkswagen’s Traton, the Swedish company is planning to spend 500 million euros in the next years to install at least 1,700 chargers in Europe for heavy-duty vehicles.

Under the IRA, the US would cover $45 per kilowatt-hour of a battery’s production costs — aid that “will definitely change the equation for customers,” and potentially also for Volvo, Lundstedt said.

Northvolt sees demand for electric vehicles “moving rapidly upward” in North America, and supply chains — including makers of cells, electrodes and separators — also are shifting to the U.S.

While the company has not committed to building a plant in the U.S. yet, it has hinted that it may postpone a factory in Germany in favor of one in North America.

With the current incentive imbalance, “it is basically impossible to operate in the North American market from anywhere else,” Carlsson said.

The extent to which European companies are prepared to shift investment plans to the U.S. is still unclear.

Industry is signaling a lot is on the line, though some observers are preaching caution.

“We do not have to move at light speed,” said Arne Holzhausen, a senior economist at Allianz. “We need to move with the utmost thinking and precision and not think we just have to match the U.S. billions.”

Danish Prime Minister Mette Frederiksen offered industry a glimmer of hope on the process. After meeting Friday with European Commission President Ursula von der Leyen, the prime minister said EU policy makers understood the need to act fast so the Nordic country can again start handling applications for new offshore wind parks.