Biden’s IRA sees Tesla and others taking a look at investments in Europe

Elon Musk, CEO of Tesla, on a stage at the Tesla Gigafactory in Grünheide, Germany.

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Tesla recently announced a shift in strategy away from Europe as it seeks to capitalize on unprecedented subsidies in the United States. But it’s not the only company scrutinizing investment decisions towards Europe.

Many multinationals are reconsidering plans to funnel new money into Europe. It comes after US President Joe Biden unveiled the Inflation Reduction Act, or IRA, last year, which calls for $369 billion in spending on climate and energy policies.

The landmark legislation providing green subsidies for companies has raised competition problems for European companies – and angered politicians in the region. Brussels must consider how best to respond.

Northvolt, a Swedish battery manufacturer; lime tree, a chemical giant from Germany; Volkswagen, the carmaker; Enel, the Italian energy giant, have all expressed interest in taking advantage of US subsidies. And there could be more.

“European companies prefer to have the gift of the US government rather than the punishment of European authorities,” Evangelos Mytilineos, CEO and chairman of Greek industrial conglomerate Mytilineos, told CNBC’s “Squawk Box Europe” about the extra red tape in Europe .

When asked if he would move his business to the US, Mytilineos replied: “It’s a possibility. Unfortunately, it’s not just a possibility for our company.”

It is still early to estimate how much investment could be diverted from Europe as a result of Biden’s policies. So far, however, the message from European companies is clear: they want officials in the region to do more to support them.

EU Commission President Ursula von der Leyen said in a speech in February that it was time for a “simpler and faster framework”. Earlier, her team applauded states’ efforts towards a cleaner economy, while intensifying talks with their peers to ensure European companies don’t flock to America.

But there are fears it may be too little, too late.

Peter Carlsson, Northvolt’s CEO, told CNBC in February that his company was working on a North American facility. “And with the IRA that kind of plan [of] got a turbo boost given the very strong incentives,” he added.

Northvolt is faced with deciding whether to pursue its expansion in North America before continuing in Germany.

Meanwhile, Ilham Kadri, CEO of Solvay, a chemicals company headquartered in Belgium, said in January: “The reality is that if Europe regulates – to put it in black and white – the Biden government will incentivize it.”

EU is ‘aware it needs to do more’

Tesla last month decided to scale back some investments in Germany and instead focus on the North American market to take advantage of the IRA.

“Tesla’s cell production center 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 spokesman for the company was unavailable Thursday when requested by CNBC.

It comes as both companies and analysts argue that the simplicity of the IRA is too attractive to pass up.

“First of all, the IRA is very simple. And simplicity is always a win. In contrast, the machinery of the European Union is much more complex,” said Maria Demertzis, senior fellow at the Bruegel think tank.

“Will companies in the European Union or elsewhere defer investments that they wanted to make in the European Union and actually reap the direct and very simple and immediate benefit that the IRA actually promises?”

It’s something European officials are worried about, she added, and it comes at a particularly difficult time.

Economies across the EU cannot afford to lose vital investment when grappling with a cost of living crisis. The block also wants to be independent of China and others when it comes to critical materials such as lithium.

“The EU is particularly aware that it needs to do more to be internationally competitive,” said Demertzis.

The European Commission, the EU’s executive arm, is still working on a sovereignty fund to provide finance for green projects, but full details are not expected before June.

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