Elon Musk, Tesla CEO, on a stage at the Tesla Gigafactory in Grünheide, Germany.
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Tesla recently announced a strategy shift away from Europe as it seeks to benefit from unprecedented subsidies in the United States. But it’s not the only company reviewing investment decisions vis-à-vis Europe.
Many multinationals are reconsidering plans to deploy new money into Europe. It comes after U.S. President Joe Biden last year presented the Inflation Reduction Act, or the IRA, which includes a record $369 billion in spending on climate and energy policies.
The landmark legislation, which features green subsidies for businesses, has raised competition issues for European companies — and upset politicians in the region. Brussels has been left considering how best to respond.
Northvolt, a Swedish battery maker; Linde, a chemical giant from Germany; Volkswagen, the carmaker; Enel, the Italian energy giant, have all expressed an interest in profiting from U.S. subsidies. And there could be more.
“European companies, they prefer to have the present of the U.S. government rather than the penalty of the European authorities,” Evangelos Mytilineos, CEO and chairman at the Greek industrial conglomerate Mytilineos, told CNBC’s “Squawk Box Europe” about the additional bureaucracy in Europe.
When asked if he would be taking his business to the U.S., Mytilineos replied, “It is a possibility. Unfortunately, it is not just a possibility for our company.”
It is still early to assess just how much investment could drift away from Europe as a result of Biden’s policy. But so far the message from European businesses is clear: they want officials in the region to do more to support them.
In a speech in February, European Commission President Ursula von der Leyen said it was time for a “simpler and faster framework.” Previously, her team had welcomed the efforts stateside for a cleaner economy, while intensifying talks with their counterparts to ensure European businesses would not flock to America.
But there are fears it could be too little, too late.
Peter Carlsson, the CEO of Northvolt, told CNBC in February that his company has been working on a North American plant. “And with the IRA that plan kind [of] got turbo boosted given the very strong incentives,” he added.
Northvolt is in the midst of deciding whether to press ahead with its expansion in North America before doing so in Germany.
Meanwhile, Ilham Kadri, CEO of Solvay, a chemicals company headquartered in Belgium, said in January: “The reality is that the Biden administration incentivizes when Europe regulates — to put it black in white.”
Tesla last month decided to scale back some investments in Germany and focus on the North American market instead to benefit from the IRA.
“The focus of Tesla’s cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act (IRA),” the company said on Feb. 22, according to Reuters. A spokesperson for the company was not available when contacted by CNBC Thursday.
It comes as both businesses and analysts argue that the simplicity of the IRA is too attractive to pass up on.
“The IRA is constructed in a way that is first of all, very simple. And simplicity is always a winner. By contrast, the European Union machinery is a lot more complex,” said Maria Demertzis, senior fellow at the think tank Bruegel.
“Will firms in the European Union or anywhere else postpone investment that they wanted to make in the European Union and actually profit from the direct and very simple and immediate benefit that the IRA actually promises?”
It’s something European officials are worried about, she added, and comes at a particularly difficult time.
Economies across the EU cannot afford to lose key investments as they struggle with a cost-of-living crisis. The bloc also wants to be independent of China and others for critical materials like lithium.
“The EU is particularly aware that it needs to do more to compete internationally,” Demertzis said.
The European Commission, the executive arm of the EU, is still working on a Sovereignty Fund to provide financing for green projects, but the full details are not expected before June.