Ten months earlier, the European Commission unveiled a new mechanism designed to level the playing field against the influence of the United States Inflation Reduction Act (IRA) by counteracting its subsidies from third countries. On this occasion, the mechanism was activated for the first time, granting Germany 902 million euros in public support to Swedish battery maker Northvolt. The aim is to fund the construction of a battery factory in Heide and deter Northvolt from relocating production to the United States, preserving European manufacturing capacity and technological leadership in key sectors.
“The support will enable Northvolt to build a sprawling production facility to manufacture battery cells for electric vehicles within Europe rather than in the United States,” said Margrethe Vestager, the executive vice president and competition commissioner. Vestager spoke in the Commission’s press room for the first time since resuming her duties, following the contested bid by Spaniard Nadia Calviño to take the helm of the European Investment Bank, a post she held from January 1. The announcement underscores Brussels’ intent to use the instrument to shield European industry from sudden shifts in subsidy landscapes abroad.
Of the 902 million euros in aid, 700 million will come as direct subsidies and 202 million as guarantees. Northvolt plans to commence production in 2026 and reach full capacity by 2029. The Heide plant is expected to achieve an annual output of 60 gigawatt-hours, a figure that translates to the production of roughly 800,000 to 1 million electric vehicles per year, depending on battery size and vehicle configuration. This initiative fits into a broader European strategy to sustain domestic battery production and reduce vulnerability to foreign subsidy schemes.
Avoid industrial migration
This move marks the first time Brussels has invoked a exceptional measure approved at the outset of March last year, designed to counteract the green subsidy framework promoted by the Joe Biden administration. The aim is to prevent the relocation of European industry to the other side of the Atlantic by offsetting distortions created by foreign state aid. Standing beside the German vice-chancellor, Vestager conveyed a shared conviction about the necessity of such aid to maintain European competitiveness in strategic sectors like batteries, semiconductors, and green technologies. Robert Habeck, the German economy minister, also participated in the remarks, highlighting a common view on safeguarding Europe’s industrial base.
Both leaders defended the plan amid concerns that Europe could lose critical production capabilities to more subsidized regions. They argued that the threat extends beyond isolated sectors to the broader green and digital transition, encompassing batteries, semiconductors, solar panels, and related supply chains. Habeck emphasized that without support, certain production activities might have shifted to the United States, where parallel incentives were offered. Germany rejected the accusation that Berlin was exploiting the budgetary margin to pull investments away from other member states, insisting that the objective is to reinforce a resilient and autonomous European supply chain.
“The real competition is not merely among European states like Germany, Italy, Denmark, or the Netherlands. It is a contest between Europe, China, and the United States,” Vestager remarked. She added that the integrity of the internal market and the protection of smaller, highly indebted economies are essential to ensuring that all member states have meaningful opportunities. The discussion pointed to the broader goal of maintaining a level playing field across the Union, even as member states pursue national strategies to secure strategic industries.
Vestager further noted that one part of the analysis is whether the aid payments place any single member at a disadvantage. In addition to the 902 million euros designated for the Northvolt plant, Brussels also approved a separate state aid package worth 2.9 billion euros in France to support the production of batteries, solar panels, wind turbines, heat pumps, and the underlying components and critical raw materials. The Commission has approved similar aid programs amounting to around 9.1 billion euros across Belgium, Austria, Germany, Hungary, Italy, Slovakia, and Spain, reflecting a coordinated European effort to bolster domestic manufacturing in essential sectors while guarding the integrity of the single market. [citation: European Commission, 2024]