The state-aid rules' death of Europe's electric vehicle battery industry

On Wednesday (25 June), the EU Commission will publish its revision of state aid rules (CISAF). Leaks suggest they are expected to maintain a ban on production aid: that is the giving of subsidies per unit of, say, battery cells produced. Production aid was critical to the success of the US Inflation Reduction Act (IRA) in attracting battery factories — and eclipsing Europe on battery production.

Commission president Ursula von der Leyen is now presiding over a slow-motion collapse of the European auto sector that will leave it unable to produce or procure anything without Chinese help.

The EU’s industrial strategy risks becoming full of grand declarations and elegant plans, yet hollowed out by indecision and EU bureaucratic inertia.

Take the union’s strategy for electric vehicles.

Once, Europe’s car industry was the envy of the world. Stuttgart, Wolfsburg, and Paris set the pace in automotive innovation. Now, as Chinese manufacturers roll out cheap LFP batteries and software-defined vehicles, Europe’s giants are left scrambling.

Von der Leyen reacted forcefully and drew up a bold plan combining battery production aid, strategic regulation of Chinese foreign direct investment, and robust European content requirements.

But what could have been a heavyweight strategy now risks being diluted into a featherweight menu, with commissioners cherry-picking the least controversial items and slow-walking the rest.

Take battery production aid. Von der Leyen announced IRA-style support to give European battery makers a fighting chance, and said the EU would condition aid to Chinese giants on technology sharing and local supply chains.

Instead, the bloc’s draft state aid guidelines threaten to ban such aid, but do nothing to prevent Hungary from giving billions to create Chinese battery enclaves in the heart of the EU.

Why? Apparently production aid does not align with the bureaucracy’s ‘doctrine’. 

While parts of Brussels wallow in 1990s dogma, even US Republicans now recognise batteries are a strategic technology. Donald Trump’s so-called “Big Beautiful Bill” preserves the IRA battery production aid though it inserts fierce anti-Chinese provisions.

The commission chief’s original vision for Chinese FDI was clear: yes to more investment and collaboration, but based on clear rules to prevent Europe from becoming a screwdriver assembly line for BYD and CATL. What’s emerging are non-binding guidelines destined for the bottom drawer of national ministries.

Even the promise of “European content requirements on battery cells and components in EVs” is at risk of being lost in the legislative fog.

Will the Industrial Decarbonisation Accelerator Act, Brussels’ latest attempt to decree an industrial renaissance without significant funding, have more bite than the ill-fated Net Zero Industry Act? 

Squandered by 'non-binding'

Von der Leyen promised legislation to speed up the electrification of Europe’s huge company car fleet.

What her transport team is developing is another set of non-binding targets on EU states, squandering the biggest EV demand opportunity at Europe's disposal. 

The tragedy is not a lack of ideas but a lack of follow-through. 

This is being exploited by car lobbyists who are busy working to erode the 2035 zero-emission goal, pushing for weaker standards, fantasy fuels and lightly regulated plug-in hybrids — an open invitation for China to dominate the global EV market.

Europe’s industrial strategy is not just lightweight. Each compromise, each delay, each non-binding directive is another step toward what Mario Draghi called “the slow agony of decline”. Can we really afford to mortgage the continent’s industrial future for the comfort of today’s incumbents and the convenience of bureaucratic consensus?

Von der Leyen has the right ideas, and she has the power to make them happen. She now faces a stark choice. She can preside over the slow-motion collapse of Europe’s industrial might, and watch a solar scenario unfold for EV supply chains, with Europe walking back on its EV goals and unable to produce or procure anything without Chinese help. 

Or she can seize this moment, impose discipline on her Commissioners, and deliver the hard, heavy policies, and funding that Europe needs to reclaim its place in the automotive and industrial vanguard.

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