The European car industry fears that landmark legislation passed by the Biden Administration this year will severely damage exports to the U.S.. The Inflation Reduction Act aims to encourage the development of U.S. green industries and technologies as well as providing subsidies for American-made Electric Vehicles (EVs).

On his state visit to Washington last week, France President Emmanuel Macron asked his American counterpart to make some exceptions. At their joint news conference, Macron said the problems could be "fixed," and Biden added that it just needed "a few tweaks."

However, French motor manufacturers like Renault were already experiencing huge challenges with falling sales, rising prices and a shortage of key components like microchips. The fear within the industry is that the U.S. government's move to subsidize American-made cars will make life even more difficult.

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Macron has taken a close personal interest in the development of EVs in France. During his state visit, officials say he made it clear to his American counterpart that the new legislation could inflict severe and lasting damage to European industry. That would leave Europe EV makers struggling to compete against new global competitors.

The automotive industry has been a key part of the French economy since the Second World War and recently, output peaked at 2.2 million vehicles a year. But a combination of economic downturn and the coronavirus pandemic saw production down by nearly one-third, and it is recovering very slowly.

What has been making life even more difficult is the disruption to supply chains during the pandemic, which has led to a shortage of raw materials and parts, as well as particularly intense global competition for the manufacture of microchips which are crucial to modern vehicles.

According to the latest figures, France still managed to produce nearly 1.7 million vehicles last year, of which 174,000 were electric. That at least has helped to support the 100,000 jobs in the car industry at a time of growing social unrest in France.

Clearly, these are issues affecting other large European vehicle manufacturers, especially Germany and Spain, both of which have a significant presence in the U.S. market. 

During his visit to Washington, Macron was offered some comfort with Biden indicating that his administration would look closely at the details of the legislation to minimize any negative impact on European car makers. But with new global players expanding their market share, the pressure will only increase on European manufacturers.

Cover image: Jason Cairnduff/Reuters