VW exec says high energy prices will kill car battery production in Europe

VW exec says high energy prices will kill car battery production in Europe

POLITICO — 2022-11-29

News from Brussels

German car giant Volkswagen may stop investing in battery factories across the bloc if the EU fails to tame energy prices and beef up its industrial policy, according to a senior executive at the company.

"Europe is not cost-competitive in many areas, in particular, when it comes to the costs of electricity and gas," Thomas Schäfer, who runs the Volkswagen brand, said in a post on social media slamming Europe's industrial policy.

"If we don't succeed in quickly lowering energy prices in Germany and Europe, then investments in energy-intensive production, or for new battery cell factories, in Germany and across the EU will no longer be feasible," he said.

His comments call into doubt a major investment program launched by the company to fuel its switch away from combustion-engines to cleaner electric vehicles ahead of an EU-wide mandate for all new car sales to be zero-emissions by 2035. The initiative involves building six battery cell plants in Europe expected to generate over €20bn in annual sales and create up to 20,000 jobs.

The post also comes at a time when high energy prices are hiking up costs for energy-hungry industries, putting Europe's competitiveness for manufacturing at risk.

"The fact of the matter is, in an international comparison, Germany and the EU are rapidly losing their attractiveness and competitiveness," Schäfer said. "The US, Canada, China, Southeast Asia and regions such as North Africa are stepping on the gas."

The VW executive, who oversees the group's mass market car businesses, pointed to the U.S. Inflation Reduction Act as an example of robust industrial policy. The policy aims to attract investment in green tech by linking an electric vehicle tax credit to local manufacturing and material sourcing, causing European governments to complain that it siphons investment away from the Continent.

In his post, Schäfer called Europe's standing industrial subsidy programs "outdated" and "bureaucratic," and said tentative plans by France's Economy Minister Bruno Le Maire and Germany's Vice Chancellor Robert Habeck to bolster Europe's support for its major industrial players will "fall short."

"The EU urgently needs new instruments to avert creeping deindustrialization and to keep Europe attractive as a location for future technologies and jobs," the VW executive argued.

Counting the cost

Schäfer's comments underscore a broader malaise within Germany's hulking auto industry over how to respond to spiralling energy costs.

At its Saarbrücken plant near the French border, German car parts maker ZF Friedrichshafen employs some 9,000 staff to churn out combustion-engine vehicle transmission systems.

But it takes on average 2.3 times more labor to produce high-end systems for conventional engines compared to comparable alternatives used in an EV, the company’s CEO Wolf-Henning Scheider told POLITICO, meaning jobs were already at risk even before spiralling energy rates made the situation worse.

“It could happen that suddenly in five, six years we are rubbing our eyes and wondering, ‘where are our products?’” said ZF's Scheider | Thomas Kienzi/AFP via Getty images

“Definitely this plant will be smaller at the end of the decade,” Scheider said.

While Scheider argued that jobs in clean tech industries will mitigate those lost, he also stressed that prolonged periods of high energy prices will mean companies have to factor in the added costs when assessing where to allocate their manufacturing capabilities.

On average, 30% of what ZF’s 90,000 employees build in Europe is exported to car plants in North America, with more than half of Saarbrücken’s transmission output shipped beyond the EU's borders.

That’s made financial sense until now, but given the high utility costs — and the company's existing outposts in North America and in Asia — it could choose to move production outside Europe where running costs are cheaper. 

“It could happen that suddenly in five, six years we are rubbing our eyes and wondering, ‘where are our products?’” said ZF's Scheider.