The European Union’s (EU) strong opposition to the US Inflation Reduction Act (IRA) persists.
Germany and France, the two largest economies in the European Union, decided to collaborate to formulate a strategy against the IRA. The two countries’ economy ministers, Robert Habeck and Bruno Le Maire, took action to bolster Europe’s renewable energy sector.
The ministers argued that the agreement would benefit the EU and the US, and they called on the US to “amend” the IRA.
According to Berlin and Paris, the IRA encourages state incentives for electric vehicles produced in North America, and its fixing will protect Europe’s industrial base. They have stated that North America is important for Europe in the transition to zero carbon.
The ministers announced that the European Union (EU) should be eligible for the same exemptions granted to Canada and Mexico by the IRA.
EU to loosen state aid regulations
Hoping to gain backing for their proposals from the other EU countries, Germany and France fear that the industry might otherwise leave the EU in favor of lower energy costs and government incentives in North America.
Besides obtaining exemptions from North America, Berlin and Paris are planning on granting incentives to EU-based businesses. It is said, for instance, that government contracts to be given to private companies can only be arranged in ways that European companies can adapt to.
Habeck and Le Maire also urge changes in state aid regulations, tax rebates, and the release of EU aid money for climate-friendly investments.
Caveats from the capital
On the other hand, the business world keeps sounding the alarm that the European Union will fall behind the United States in the transition to clean energy.
Lastly, Björn Rosengren, CEO of ABB, a Swiss monopoly in automation and robotics technologies, said that drive toward sustainability should do it in a way that does not destroy Europe.
Rosengren was quoted as saying, “Make the legislations right, don’t over-administrate things,” in Financial Times, highlighting the complex EU legislation and recalling the challenges in the green transformation.
Europe should take note of the US approach that offered “carrots” to bring about change, added the ABB CEO.
Rosengren said that the US would get a lot of investments in the next five years due to the IRA and Europe needs to do something.
Unsatisfied South Korea
Having car manufacturing behemoths, South Korea and Japan are also worried about the IRA.
Last week, Yonhap, a news outlet with ties to the Seoul government, published an article with expert commentary claiming that government incentives offered by the United States would hurt America’s ability to compete with China.
In the article, it has been reported that South Korean battery manufacturers are now thinking about “unwinding” their investments in Argentina and Indonesia to secure critical materials and minerals for electric vehicle (EV) batteries designed to be sold in the US.
However, it is also stated that Korean battery manufacturers, which have already invested billions of dollars in North America, have taken action to accelerate these investments together with the IRA. In the past three years, South Korean battery makers have invested in eleven new factories in the North American region.
The United States Department of Energy has recently announced the closing of a $2.5 billion loan to Ultium Cells to finance the construction of manufacturing facilities in three different states in the United States. Ultium Cells is a joint venture between American General Motors and Korean LG Energy Solution.
The interest rate on the loan is the same as the US Treasury rate, which is about 3.6 percent. LG will have to pay an additional two percent in interest if it tries to secure this loan through the South Korean bond market.
Ultium Cells expects an overall production capacity of 145 gigawatts with the three plants by 2025. This figure ensures to power 2 million all-electric vehicles per year.
In cooperation with SK On of South Korea and Ford of the United States, the largest battery factory in the United States is being constructed.
Hyundai in trouble
The IRA, however, is having an effect in other fields. Hyundai, a South Korean automaker giant, lost its second place in the US EV market to Ford this year.
Ford sold 53,752 EVs in the United States from January to November this year, surpassing the combined sales of 53,663 units of Hyundai and Kia.
As of the first half of this year, Hyundai stood second after Tesla.
In 2023, Hyundai is bound to face even bigger challenges because its IONIQ 5 and EV6 models have been excluded from tax credits since they are produced in Korea and exported to the United States.
For this reason, Hyundai plans to build an electric car factory with an annual capacity of 300,000 units in Georgia. Still, its operation is only to start in 2025.
Robert Hood, a senior executive at Hyundai Motor, threatened that if the damage from the IRA to their company increases, they will reassess whether the investment in Georgia is viable. Hood further emphasized that labor and production are substantially cheaper in Mexico.
“We ask the US government for a chance to compete fairly for the next few years,” the executive said, stating there needs to be time to adjust to the IRA.
