Europe’s Response to IRA Balances Field, Not Result

An official from a Korean battery company recently noted, “The Industrial Accelerator Act is creating a more level playing field, allowing us to compete with China on equal footing.”

This was in response to a query about the implications of the Industrial Accelerator Act (IAA) in Europe for Korean companies, and was unexpected as it did not hint at sudden financial gains similar to those brought about by the U.S. Inflation Reduction Act (IRA). Instead, the focus was on achieving an “equal footing”.

The newly enacted IAA is an initiative aiming to boost manufacturing within Europe. It seeks to increase demand for locally-made products by imposing local production stipulations on public procurement and support programs. Its goal is to enhance the share of manufacturing in the gross domestic product and to broaden the “Made in Europe” brand, drawing comparisons to the IRA in the U.S. as a result.

However, the IAA’s effect on Korean companies is expected to be different from that of the IRA. The American law augmented support for local production while putting in place measures to lessen reliance on Chinese supply chains, creating opportunities for Korean companies as China’s influence dwindled.

Europe’s situation is more complex, with differences in industrial conditions and interests among member states. Car manufacturers in Europe, who have production plants in China and sell products in the Chinese market, will have to take into account the implications of stricter regulations. A battery industry researcher commented on the issue, “The direction will be similar to the U.S. IRA, but its potency is yet to be determined.”

Similar sentiments are echoed by industry insiders. Despite the growth of the energy storage system (ESS) market in North America due to increased power demand and a realignment of supply chains, which has created opportunities for Korean companies, the IAA is unlikely to mirror these conditions. Chinese firms can meet local production requirements by ramping up production at their current European facilities.

This is where the IAA becomes significant for Korean battery manufacturers. Previously, Korean firms had to compete with low-cost products produced by Chinese companies with extensive supply chains. With stricter production regulations in Europe, Korean companies can now compete on the basis of product quality and technology under more equitable conditions. Although this policy does not assure immediate gains, it does provide an opportunity to level the playing field.

Nonetheless, what happens next is crucial. As competitive conditions align, the success of a company will depend on its competitiveness. To reclaim the European market, Korean companies will need to stay a step ahead of their Chinese counterparts in terms of technology, local production capabilities, and customer acquisition. The IAA presents an opportunity for the Korean battery industry, but the companies must not rely on the policy alone. Having leveled the starting line, the race for victory now rests with the companies themselves.