Europe and the United States want more of the electric vehicle supply chain at home. Car factories, battery plans and refineries create jobs and useful know-how that countries want for themselves. Factories at home are also less likely to get caught up in trade wars.
But there’s a finite number of car factories, battery plants and refineries. Everyone wants them. Not everyone can have them.
To encourage manufacturers to choose Alabama over Aalborg, the US is giving lots of money to companies who build electric vehicle factories. It’s working!
From a FT story about how Volkswagen is prioritising a new EV factory in the US:
Another executive said: “We’ve been contacted by many US states and they all highlight the IRA. When we put the figures together, the conditions they offer are much more interesting than the conditions they offer in Europe.”
VW said no decisions had been made on the locations of its plants in North America or Europe and it was committed to its plan to build more cell factories in Europe. “But for this we need the right framework conditions.
“Right framework conditions” is a fun way to say “more money please”
Industrial policy like this is full of clever rules to force companies to use subsidies wisely instead of growing fat and slow on the government teat: Half the money upfront, half on completion; government share in the profits; more money if the company exports lots and proves to be internationally competitive. There might also be rules so companies who take subsidies commit to government priorities, say paying workers fairly or offering child care.
But there’s only so many factories! Will competition cause governments to lower standards? A race to the bottom on industrial policy? At the very least governments are likely to pay up. Let’s see how many framework conditions the EU offers.