GIGAFACTORY: The price of electricity as an obstacle

The VW concern announced today – and the Czech government confirmed – that it is not interested in building a new battery factory for electric cars near Pilsen. The rapidly declining interest in electric cars and the high cost of electricity in the Czech Republic make this impossible.

After Monday’s meeting with the Prime Minister of the Czech Republic, Petr Fiala, today the Chairman of the Board of Directors of the Volkswagen Group, Oliver Blume, essentially gave his final word on the gigafactory project in Líny near Pilsen, in which the Czech government invested a lot of political capital. “Given the market situation, including the slower take-up of the electric car market in Europe, there are currently no business reasons to decide on additional locations in Europe.” He added that VW already has three locations selected for battery production in Germany, Spain and Canada. In response to this, the Minister of Industry and Trade of the Czech Republic, Jozef Síkela, claimed that the government has prepared negotiations with five other investors.

Today, foreign media reported a report in which the finance chief of the VW concern, Arno Antlitz, admitted that this year’s European new orders for the concern’s electric cars had halved from last year’s 300,000. At the same time, Europe accounts for 64% of the total global sales of electric cars of all brands of the concern, which also includes Škoda Auto. Layoffs have begun at German electric car plants.

The answer to why the Czech Republic cannot build a similar gigafactory is hidden in the content of the Volkswagen boss’s message. If in competition with the Czech Republic, countries such as Germany or Canada win with the highest wage costs, the VW concern logically does not find a fundamental advantage in the Czech Republic for making battery production cheaper, even with the low level of wages and salaries in the Czech Republic. The main obstacle is the price of electricity, which is the same as in Germany, where, of course, Berlin heavily subsidizes the industry. Cheaper Czech employees with about a 5% share of personnel costs in the total cannot save it. The head of VW Blume said in an interview a month ago that due to the low price of electricity in Canada, it is more economical for VW to produce batteries there despite the cost of ocean transportation. The head of VW indicated the limit price for the competitiveness of this car company in conversion of 1.70 CZK per kWh. Czechs now pay 5 times as much and more, and it will be even worse due to the costs of the decarbonization policy due to the ever-increasing installed capacity of unstable energy sources. Only Czech government politicians are afraid to tell people the truth.

The Gigafactory for the Czech Republic is not connected to any scientific base, so it is again purely an assembly plant, which the overwhelming majority of foreign investors served as part of the economy of scale to save and actually subsidize their industrial sites in the wage-demanding countries of the West. In addition, there is the labor market
exhausted in the Czech Republic, even more so in the Pilsen Region. So would we import up to 5,000 foreign workers for the Pilsen gigafactory and pay for their positions with government support? The Czech government could possibly “break” another interested party for a similar project by subsidizing it mostly with Czech taxpayers’ money. But the hole in the treasury is too big for that.

However, the cancellation of the gigafactory project is a big warning for the government and the entire Czech industry and other foreign investors. Incredibly quickly, in two or three years, the vast majority of capacities for the production of electricity and heat from coal will be destroyed by emission allowances. No one in the Czech Republic will build new capacities of gas power plants without capacity payments and without a long-term perspective. The new nuclear units here will not be fully operational until the 1940s. What is clear from the approved climate and energy plan of the government of the Czech Republic from October 18 is only the sudden closure of coal resources and the capacity of new solar and perhaps also wind resources motivated by rich subsidies. From October to March, even 10 times the planned solar capacity will not save our industry. Tens of percent will be missing from the balance of ensuring the country and industry with stable electricity, which, according to the state company ČEZPS, will not be imported from anywhere. On the contrary, the strengthening and management of the grid due to the huge capacity of unreliable intermittent sources from solar and wind will increase the regulated items of the electricity price many times to an unacceptable level.

There is no need to cry over the fact that there will be no gigafactory in the Czech Republic. The near future of the Czech energy industry and thus the entire economy is much worse. Moreover, in the context of the fact that the Czech Republic lags behind in transport and other infrastructure, an overgrown state administration and its bureaucratic obstacles to business, does not produce a sufficiently qualified workforce, and its subsidy and social generous benefit policy has limited people’s motivation to work and succeed. Is it any wonder that the Czech Republic, as the only EU member state, has not yet returned to economic growth after the covid crisis?