Biden's Inflation Reduction Act Has Prompted Many Companies To Review Their European Investments

Tesla has declared a shift in its business strategy away from Europe in order to take advantage of record-breaking subsidies in the US. But it's not the only business that's considering its investment choices in relation to Europe.

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Numerous multinational corporations are rethinking their intentions to invest additional funds in Europe. It follows the U.S. The Inflation Reduction Act, or IRA, which includes a record $369 billion in spending on climate and energy policy, was introduced by President Joseph Biden last year.

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The historic legislation, which includes green industry subsidies, has infuriated politicians in the area and prompted concerns for European businesses about competitiveness. Brussels is now debating the appropriate course of action.

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Swedish battery manufacturer Northvolt, German chemical behemoth Linde, German automaker Volkswagen, and Italian energy behemoth Enel have all declared an interest in making money off of U.S. subsidies. There might be much more.

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According to Evangelos Mytilineos, CEO and chairman of the Greek industrial giant Mytilineos, "European corporations prefer to have the present of the U.S. government rather than the punishment of the European authorities" due to the extra red tape in Europe.

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It is possible, Mytilineos said in response to the question of whether he would expand his company to the United States. Regrettably, our organization does not only consider it a possibility.

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It is still too early to determine just how much investment would leave Europe as a result of Biden's strategy. Yet thus far, the message from European businesses is crystal clear: they want regional politicians to support them more.

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"Europe needs to pick up its game," Miguel Stillwell D 'Andrade, CEO of energy major EDP, told CNBC's Squawk Box Europe Friday. IRAs are "very powerful, basic pro-business investing tools," according to him.

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Ursula von der Leyen, President of the European Commission, stated in a speech in February that it was time for a "simpler and faster framework" Prior to that, her team had welcomed American efforts to promote a cleaner economy while stepping up negotiations with their counterparts to ensure that European companies would not migrate to the United States.

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Yet, other people worry that it might already be too late.

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Northvolt's CEO, Peter Carlsson, revealed to Trade Algo that his company had been developing a facility in North America. Given the very high incentives, the IRA "sort of [of] turbo accelerated that idea," he continued.

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In order to decide whether to expand first in North America or Germany, Northvolt is now debating this option.

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The CEO of the Belgian-based chemicals giant Solvay, Ilham Kadri, stated in January that "the Biden administration incentivizes when Europe regulates," to put it simply.

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The EU "is conscious it needs to do more"

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In order to take advantage of the IRA, Tesla decided last month to reduce part of its investments in Germany and instead concentrate on the North American market.

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According toTrade Algo, the company stated on February 22 that "the focus of Tesla's cell production is currently in the United States due to the structure set by the United States Inflation Reduction Act (IRA)". When Trade Algo approached the company on Thursday, no spokesperson was available.

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That comes amid arguments from corporations and analysts that the IRA's simplicity is too alluring to ignore.

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"The IRA is built in a way that is, first and foremost, quite straightforward. And simplicity always comes out on top. The European Union's machinery, in comparison, is far more complicated, according to Maria Demertzis, senior fellow at the think tank Bruegel.

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Will businesses in the European Union or elsewhere postpone investments they had planned to make there and instead benefit from the direct, straightforward, and immediate benefit the IRA genuinely guarantees

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She continued that it is a concern for European leaders and that it comes at a challenging moment.

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EU economies are grappling with a cost-of-living crisis, and they cannot afford to lose important investments. In terms of vital resources, the bloc also wants to be independent of China and others for critical materials like lithium.

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In order to compete worldwide, the EU "has to do more," according to Demertzis.

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The European Commission, which serves as the EU's executive branch, is still working on a Sovereignty Fund that would offer funding for green initiatives, but the complete details won't be available until June.