President Joe Biden and European Commission President Ursula von der Leyen recently announced an agreement to begin talks over the usage of minerals in Europe that are essential in producing batteries for electric cars that qualify for subsidies in the United States. This agreement could benefit the electric auto industry.
The two presidents decided to begin negotiations to resolve disputes between the United States and European Union over the EV subsidies that are included in America’s $375-plus billion renewable energy act, which was enacted in 2022. The act provides subsidies for purchases of cars that are built mostly in the U.S.
The Inflation Reduction Act, which was signed by Biden last year, has incentives that tend to favor electric vehicles built in the United States, but Von der Leyen together with other leaders from Europe have spoken out against those incentives. The law mandates that the batteries used by electric vehicles must primarily include minerals sourced from America or another country that has a free-trade agreement with America for qualification for the tax subsidy of not more than $7,500 when they purchase electric vehicles. In addition, by 2024, 50% of all battery minerals must be produced or manufactured in Northern America, with a progressive increase to 100% by 2028.
In response, the EU Commission unveiled its own Green Deal Industrial Strategy last month. It is anticipated that the move will simplify the subsidies, push for cleaner industries and combine projects throughout the entire European Union. Von der Leyen considers this a great and significant investment in the latest green technologies and plans to match Biden’s IRA with the Green Deal Industrial Plan.
According to James Batchik, the agreement between the European Union and the United States is crucial to avoiding a subsidy war. But nonetheless, the specifics of any upcoming agreement will determine the outcome.
When Emmanuel Macron, president of the French Republic, who is critical of the law, paid Biden a visit in Washington late in 2022, Biden defended the American strategy that promotes domestic electric vehicles, ensuring accessibility to essential minerals. However, he conceded that the law had glitches that needed minor adjustments to appease supporters.
In 2022, Biden declared he would increase lithium production as well as that of other minerals used in electric vehicles by utilizing the Military Production Act. According to specialists, that action alone was not likely to guarantee the strong local mining industry that Biden wants.
According to von der Leyen, should the agreement be finalized, then the vital raw materials obtained from the EU countries will receive a similar treatment to those obtained in America.
Companies such as Cenntro Electric Group Ltd. (NASDAQ: CENN), which are domiciled in the U.S., are poised to benefit from the supportive federal government policies seeking to quicken the transition to electric vehicles.
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