The European Union and EU member states are increasing green subsidies for the car industry, trying to fend off Chinese competition.
The European Union intends to step up the energy transition in 2024, with the goal of reaching net zero emissions by 2050. At the same time, the EU wants to fill the gap with China as the leading producer of electric cars, renewable energy, and other key sectors in the green transition.
At the beginning of the year, the European Union announced €4 billion in state aid in new factories for electric car batteries. Northvolt, the Swedish battery producer, will receive a €902 million grant to build a new factory in Germany.
France will receive the largest share of this measure, investing €2.5 billion in new factories across the country.
As for all EU aid, it represents a small share of larger measures taken by single countries. A further €9.1 billion will be invested in subsidies for green factories in Italy, Austria, Slovakia, Belgium, Spain, Hungary, and Germany.
At the same time, European companies are stepping up efforts to centralize production within the continent. Northvolt announced on Tuesday it has secured over $13 billion in equity for new investments, $5 billion of which is in the form of EU loans. The European Investment Bank is a key shareholder in Northvolt’s new operations.
Northvolt will expand its operations in key EU countries, as it receives new orders from European carmakers like BMW, Scania, and Volkswagen.
The race for the green transition
Last year, the European Commission launched an investigation probe into Chinese subsidies for electric car production. In 2023, China became the world’s largest producer of electric vehicles, overtaking Germany and Japan. Shenzhen-based BYD overtook Tesla as the world’s largest producer and seller of electric cars.
All of this was a wake-up call for European carmakers. Europe constantly maintained a competitive advantage in the car manufacturing industry, but the electric transition has China threatening this dominance.
While Europe is stepping up production, BYD announced plans for a new gigafactory in Hungary. BYD expanded its operations in Europe in August 2023.
A key component of China’s advantage is the extraction of rare earths, the raw materials used in the production of car batteries.
China has by far the largest proven reserves of rare earths, at 44 million metric tons (MT). Vietnam is in second place, with 22 million MTs. Brazil and Russia share third place at 21 million MTs each.
In the EU, the only proven reserves are in Greenland, formally a part of Denmark, at 1.5 million MT. Sweden is believed to have a similar amount of reserves in the far north, but they could not be proven with certainty yet.
