All German companies that are seduced by Biden’s aid
German companies – such as Volkswagen, BMW and Siemens – plan large investments in the United States to take advantage of the Inflation Reduction Act, also because energy costs are now high unlike in the States. Pierluigi Mennitti's insight from Berlin
The latest German company to announce the American breakthrough was Volkswagen. A $2 billion investment to build a new Scout-branded factory near Columbia, South Carolina . Objective: to produce electric pick-ups and SUVs and expand the market share in the States. In the plans, the hypothesis of building a battery factory.
VOLKSWAGEN AND BMW GET ANGRY
Even Audi, to remain within the automotive companies but also in the same group, has the USA in its sights. The CEO of the Ingolstadt-based company Markus Duesmann confirmed to the Frankfurter Allgemeine Zeitung the plan to build a plant in the United States to produce electric cars: "We have not yet taken a concrete decision," he said. Several options are on the table, from building its own factory to a joint investment with the Volkswagen parent company. "What is certain is that the US market is very important and that Washington's subsidy policy makes investment plans very attractive," he added.
On the other hand, the other Bavarian automotive giant, BMW, which has already announced a massive investment campaign in the electricity sector for some time in the USA, has its largest plant across the Atlantic in South Carolina: the news is from last autumn the $1.7 billion commitment to build electric vehicles for a new plant and the conversion of an existing one.
GERMAN COMPANIES LOOKING WEST
The acronym that disturbs the sleep of the German government, but also that of many European executives, is IRA, the Inflation Reduction Act, the almost 400 billion dollar subsidy plan launched by the administration of Joe Biden to promote new technologies in compliance with climate protection, such as battery, semiconductor and electric car factories. A magnet for companies like the German ones, used for almost two decades to conquer global markets thanks to their own skills and a combination of favorable circumstances, and now squeezed by problems deriving from the repeated crises of recent years. The Ifo Economic Research Institute has summed them up in an uneasy list: expensive energy, shortages of skilled and unskilled labour, bottlenecks in international supply chains (customers endure waiting times of a year and more), increases in raw material costs.
Thus, after years of heads turned east, towards Russia and above all towards China, now the gazes of German industrialists are turning west, they rediscover America and give the Berlin government a stiff neck.
SIEMENS PLANS
Siemens Energy makes it known that it does not want to be excluded from the expected stars and stripes hydrogen boom, financed by IRA incentives. "The market is attractive and it is very probable that sooner or later we will build a plant in the United States", the chairman of the Board Anne-Laure Parrical de Chammard confessed to Handelsblatt , specifying that a future commitment across the Atlantic will not, however, mean a disengagement from Germany. The giga factory under construction in Berlin will see the light of day as planned in the summer: here for the first time so-called PEM electrolysers will be produced on a large scale, the high costs of which are one of the reasons why hydrogen production is still expensive. But a spokesman for the group adds: "With our concept we are already well positioned for the US market, the core of the electrolysers, the stacks, are produced in Berlin and can then be assembled in the US together with regional partners".
Of particular interest to the industry is the fact that with the IRA the United States intends to subsidize hydrogen at three dollars a kilo, notes the Handelsblatt . And according to insiders, this will make many projects profitable that were previously economically unsustainable.
Siemens Energy is not the only company to focus on the United States. According to information provided by circles of its supervisory board, the former parent company Siemens also wants to increase production in the US in all major business units. And similar plans have been announced by major automotive suppliers such as Schaeffler and Bosch.
THE PROBLEM OF ENERGY PRICES
However the temptations of IRA grants don't explain everything. An important factor is also that of energy costs. German companies (as well as households) benefited greatly from the low prices of Russian energy supplies. The Ostpolitik of the 1990s and 2000s, different from the one inaugurated in the middle of the Cold War by Willy Brandt in the late 1960s, was mainly a Gaspolitik, founded on the gas pipelines planned by Vladimir Putin and Gerhard Schröder and built in the era of Angela Merkel .
Moscow's aggression against Ukraine extinguished the idea of "Gerussia", and the explosions in the depths of the Baltic Sea that knocked out Nord Stream 1 and 2 made it clear to Berlin that those times will never come again. The revival of coal, energy saving and regasification plants have averted supply shortages in the German winter, but it is clear to all that the time of low-cost energy is over forever.
A recent survey by the German Chamber of Commerce and Industry (DIHK) revealed that one in ten German companies are planning to move production to other countries, with North America being the preferred destination. And one of the main reasons for this choice is the cost of energy. Similar indications come from another survey, this time by the German-American Chamber of Commerce, according to which only 17% of German entrepreneurs questioned claim that IRA incentives are the main motivation for planned investments.
"Many observers' concerns are likely to grow that more German companies could outsource production to the United States, where energy costs are significantly lower than in Germany," commented the Bavarian regional TV website Bayerischer Rundfunk. Land particularly affected by the escape to the States.
ESCAPE TO THE STATES
The courtship of German companies by the American authorities, even the local ones, had moreover started well before the IRA was heard of. In addition to cheap energy, many American states, especially in the South, had already offered tax breaks and other aid.
Last autumn, an investigation by the Handelsblatt already took stock by questioning some American administrators. "We recently had the lowest energy costs in the United States in eleven out of fourteen quarters," Oklahoma Governor Kevin Stitt told the business newspaper. And Georgia Secretary of Commerce Pat Wilson made a similar argument: "Our energy costs are low and our grids are stable," he explained, "plus we're done eliminating coal and our state will connect to network two new nuclear power plants by 2024”. Wilson concluded, "Companies coming to Georgia reduce their carbon footprint." And the Handelsblatt confirmed: "The courtship has been successful: numerous German companies are planning to establish or expand their headquarters in the United States". And not just the German ones. Tesla announced two weeks ago that it will build the batteries in the US instead of in Brandenburg, as previously planned.
SHOULD EUROPE REALLY FEAR AMERICAN IRA?
Will he have to resign? The last word has not been said. At least according to a very recent analysis by the European think tank Bruegel, reported over the weekend by the Reuters agency, according to which the Inflation Reduction Act should worry less Europeans. The researchers note that EU support already equals or even exceeds IRA money and that the problem is not the quantity, but the quality of the aid. To avert the risk that the transfer of some companies would trigger a mass flight, suggests Bruegel, "the European Union must remain competitive by focusing on the efficiency of permitting processes and trying to take advantage of proximity to customers and the price of power".
Chemical company BASF has pointed out that US tax credits offer a better incentive for investment than one-off European aid, observes David Kleimann, a researcher at the European institute, so “the main conclusion we can draw is that the IRA has helped us take stock of what we are actually doing well and where we can improve, for example by cutting red tape or increasing innovation subsidies”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/aziende-tedesche-investimenti-stati-uniti/ on Tue, 07 Mar 2023 06:33:55 +0000.