EU EV Sector At Risk Without Strong Industrial Strategy

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A recent École Polytechnique study highlights significant obstacles for the European Union in establishing an electric vehicle (EV) supply chain.

China’s control over the electric vehicle (EV) supply chain and enhanced incentives from the US government for its domestic automobile industry are putting the European Union’s efforts to strengthen its EV manufacturing at a disadvantage, as observed by the European Automobile Manufacturers’ Association (ACEA). A recent study by École Polytechnique highlights the substantial challenges the EU faces in developing an EV supply chain. The study points out that the EU’s electric vehicle manufacturing competitiveness could diminish while other regions advance with comprehensive industrial strategies that strengthen their local industries.

The report emphasizes China’s comprehensive policy that covers all aspects of the EV lifecycle, including mining, refining, manufacturing, charging networks, affordable energy, purchase incentives, and recycling, which significantly boosts its competitive position. Conversely, the EU’s approach to industrial policy is fragmented, focusing on regulating specific stages of the value chain.

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Furthermore, the report indicates the United States’ increasing efforts to become a hub for EV value chain manufacturing. Ambitious sales goals in states like California and substantial funding through the Inflation Reduction Act (IRA) are enhancing the US domestic auto industry, thereby challenging the competitiveness of European automakers in one of their key export markets for electric vehicles.

Sigrid de Vries, ACEA Director General, stated that unlike China and the US, the EU lacks a strong industrial strategy to support EV manufacturing. A thriving EV industry in Europe is essential for meeting climate objectives. Europe aims to lead globally in decarbonization but needs to do more to strengthen crucial industries in a synchronized and coherent way.

The report does acknowledge progress in Europe’s battery cell production, but the upstream battery value chain development lags behind demand, leading to continued reliance on China. De Vries mentioned recent positive signs from the EU acknowledging the challenges and competitive threats facing the sector. However, she criticized the EU for often prioritizing regulation over industry support, which can harm vital sectors.

De Vries further commented that the EU’s regulatory framework for vehicle electrification is disjointed, with an average of eight or nine regulations per year diverting essential funds and affecting competitiveness. To address climate change and boost the emerging EV industry in Europe, the EU must create a tailored regulatory and financial framework to foster a supportive business environment.

 

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