Sticks and carrots: Financial support for the automotive sector | In Principle

The automotive industry is one of the pillars of the European economy, with a long tradition and a significant contribution to job creation and industrial activity. But the sector is facing difficulties, impacting even leading manufacturers. As the automotive industry is an important part of the energy transition, a question increasingly being asked is whether the industry can count on public financial support in the transition, and if so, what the funds are earmarked for.

Achieving the objectives of the EU’s energy transition, in pursuit of climate neutrality (under the Fit for 55 package), means far-reaching changes, indeed a revolution in many areas of the economy. This also applies to the automotive sector. Electromobility has been recognised as an effective tool in decarbonisation of transport, and it will grow in effectiveness as the share of renewables in the energy mix increases.

The pressure to decarbonise, and thus to develop electromobility, has forced vehicle manufacturers to establish new platforms and business lines and implement changes in their manufacturing processes. Electric vehicles also mean changes for end users and the need to modify infrastructure more broadly. Over the next decade, automotive technology will undoubtedly undergo significant changes. It is projected that in 2030 more than 60% of all vehicles produced in Poland will be electric vehicles.

However, the supply of electric vehicles should meet demand, which is currently not high at all and recently has even started to decline. This is due to several factors. First, the price of electric vehicles is still high, and their range is much shorter (barely half that of a diesel car). Charging points are still scarce, with occasional (but publicised) incidents of batteries spontaneously combusting. The result is declining interest in these vehicles.

The Polish automotive sector

The Polish automotive sector is primarily focused on manufacturing of:

• Motor vehicles, including passenger cars, buses, cargo and other vehicles, as well as engines
• Vehicle bodies, trailers and semi-trailers
• Automotive parts and accessories.

Over the past decade, the Polish automotive industry has seen a 100% increase in sold production. The main reasons for growth of the country’s automotive industry include:

• High qualifications and availability of employees
• Transport infrastructure—dynamic development and modernisation of transport infrastructure (road, rail, air and sea) and substantial investments in development of port facilities, especially container terminals
• Cooperation opportunities—in Poland, there are more than 660 subcontracting companies, and also plants manufacturing cars (VW, FCA, and the PSA Group with its Opel plant) and buses (Solaris, MAN, Scania, Volvo, Autosan, Ursus/AMZ)
• Financial support—foreign companies can obtain financial support for projects in Poland from EU funds and domestic sources, including direct cash support and tax exemptions
• Labour costs and other operating costs—in Poland these costs remain competitive (some of the lowest burdens on the employer side in the area of social security contributions among the countries of the region)
• R&D—a mature ecosystem for cooperation between business and universities, and high-quality education, create a solid foundation for research and development
• Automotive exports—here it is vital to attract investors to the auto parts and components segment, where manufacturing creates more domestic added value than car assembly.

Experts also point to factors that could hinder the growth of the automotive sector, such as:

• Tightening of emission standards, with the aim of reducing average emissions of carbon dioxide (CO₂) and nitrogen oxides (NO_x)
• Safety provisions (e.g. black boxes and speed limiters)
• Bans on internal combustion vehicles entering city centres
• Rising labour costs.

Investment incentives in Poland

Influenced by new trends arising from the energy transition, Polish automotive companies are trying to change their business models, but face costly investments. However, they can find backing at the national level:

• Income tax exemptions for investments in special economic zones, determined on the basis of the regional aid map for 2022–2027
• Real estate tax exemptions, depending on where the project is sited (pursuant to resolutions by local communes)
• Various forms of employment support for the registered unemployed, offered by local employment agencies (at the county level)
• Tax credit for R&D.

National programmes benefiting the automotive sector have a similar objective:

• “Green Public Transport”—this programme to subsidise green public transport all over Poland, launched in 2021, provides support to public transport systems to acquire new zero-emission vehicles, including trolleybuses and buses powered by electricity and hydrogen, and to develop charging infrastructure. (Pursuant to Poland’s Energy Policy through 2040, from 2025 any tender for buses in cities with more than 100,000 inhabitants must be exclusively for zero- or low-emission vehicles (electric or hydrogen-powered).) Based on applications submitted by local governments, funding has been provided for the purchase of more than 600 buses (502 electric and 117 hydrogen-powered), along with the necessary charging and refuelling infrastructure. The budget of the latest, third edition of the programme was more than PLN 480 million, of which less than PLN 277 million was for non-refundable grants and the rest was loans. Disbursement of funds under phase III will continue until 31 December 2025.
• “My Electric Car” programme—the call for applications for non-refundable grants for the purchase of electric and hydrogen-powered vehicles runs from November 2021 through September 2025 (subject to earlier termination if the budget is exhausted). The budget is PLN 900 million (raised from the original PLN 800 million). Under the programme, companies, public finance units, research institutes, associations, foundations, cooperatives, farmers, as well as religious organisations, are all eligible. The programme is expected to lower the cost of purchasing electric vehicles, which are currently more expensive than their internal-combustion versions. The aim of the programme is to increase the share of new electric vehicles, with increased demand driving the transition of the automotive sector, including vehicle manufacturers, sub-suppliers, and electric vehicle battery manufacturers with factories in Poland.
• “Support for Electric Vehicle Charging Infrastructure and Hydrogen Refuelling Infrastructure” programme—from January to March 2022, applications were accepted for non-refundable grants for infrastructure construction, benefitting local governments, companies, housing cooperatives, and farmers. The purpose of the programme was to establish a network of more than 17,000 electric car charging points and 20 hydrogen stations.

The Ministry of Climate and Environment plans to launch new financial support programmes:

• “Support for the Purchase or Lease of Zero-Emission Vehicles in Categories N2 and N3”—this subsidy will be available to companies deciding to buy or lease a new zero-emission vehicle in the N2 category (gross vehicle weight of 3.5 to 12 tonnes) or N3 (gross vehicle weight of more than 12 tonnes). New vehicles must use only electricity for propulsion, including electricity generated from hydrogen, or use only an engine whose duty cycle does not cause greenhouse gas emissions. The programme’s projected budget is PLN 1 billion, to be distributed in 2024–2028 or until the funds are exhausted.
• Development of a publicly accessible network of charging stations for heavy transport, with a budget of PLN 2 billion.
• Subsidies for the purchase of new electric bicycles, including cargo bikes and bicycle carts. For this purpose, the government plans to allocate PLN 300 million, for implementation in 2025–2029.
• Educating highly qualified workers—the Ministry of Climate and Environment and the Ministry of Education have begun work to launch a new field of education, “electro-mobility technician,” to meet current and future needs of the electro-mobility industry and the automotive sector more broadly.

In addition to support programmes, legislative changes are also underway. The Ministry of Infrastructure has been involved in the development of new road transport provisions at the EU level:

• Euro 7 Emissions Regulation (2024/1257), introducing the new Euro 7 emission standard for passenger cars, vans, trucks and buses
• Revision of the Weights and Dimensions Directive (96/53/EC)—this overhaul is part of the Sustainable and Smart Mobility Strategy and its related action plan, the Greening Freight Transport Package, and also includes other legislative proposals by the European Commission:
  • Proposal for a Regulation on the use of railway infrastructure capacity in the single European railway area
  • Proposal for a Regulation on the accounting of greenhouse gas emissions of transport services (CountEmissionsEU)
  • Proposal to revise the Combined Transport Directive (92/106/EEC).

EU funds

Companies in the automotive sector can apply for funding by entering competitions organised under the following EU programmes:

• Call for applications (from 15 October to 28 November 2024) for funding to promote the brand of innovative SMEs in foreign markets (FENG 2.25 “Go To Brand 2024”)
• Call for applications (from 9 September to 4 October 2024) for funding projects for the purchase of zero-emission bus fleets (electric, hydrogen) with the necessary charging/refuelling infrastructure under the National Recovery and Resilience Plan, Component E: Green, Smart Mobility Investment
• Call for applications (from 28 June to 31 December 2024) for funding of urban rail projects, “Urban rail, call 1,” under Priority FENX.05, Support for the transport sector from the European Regional Development Fund.

An example of the use of EU funds to support the automotive sector in transition is the Drive2Transform project (Integrative Regional Approaches for the Transformation of the Automotive Industry) with ERDF funding of EUR 1.8 million. Drive2Transform supports automotive companies by developing a cross-regional transformation strategy for the sector, so that SMEs, in particular, can navigate changes in four thematic areas: connectivity, electrification, automation, and the platform economy. The Drive2Transform partners connect eight Central European countries. On the Polish side, the project partner is the Silesian Automotive and Advanced Manufacturing Cluster.

Polish companies can also benefit indirectly from European funds by engaging in the automotive sector promotion programme implemented by the Polish Investment and Trade Agency (PAIH). The programme showcases Polish products and services in the automotive sector at international industry events, and organises informational and promotional campaigns and inbound missions to Poland. The programme targets all Polish companies operating in the automotive sector.

Education and retraining

Automation and electrification of the automotive industry will also affect current and future automotive workers. The sector is evolving rapidly with technological advances and the growth of electric vehicle production. Electromobility is already visibly impacting traditional automotive jobs, altering the employment structure and the need for specialised workers. When estimating the demand for workers in electromobility branch, the rate at which traditionally powered vehicles are being replaced by electric cars and public transportation fleets are upgraded will remain key.

This shows that increasing production of zero-emission vehicles should be accompanied by a strategy of upskilling and reskilling the automotive workforce and restructuring operations, while maintaining employment levels in this industry.

These changes will drive the market’s demand for more qualified experts, engineers and specialists. Electromobility will affect workers’ mobility between industries, and retraining. There will be growing interest in batteries, recycling, and electric vehicle charging infrastructure.

Companies wishing to support their workers in obtaining new qualifications can take advantage of European funding under the following competitions:

• “Development Services 4.0” (call for proposals from 12 February 2024 to 31 August 2026) provides support in the form of reimbursement of the cost of purchasing licences, enabling creation, development and sale of new forms of development services or use of new technologies also used to provide services remotely
• “HR Academy” (call for proposals from 25 March 2024 to 30 November 2026), helping micro enterprises (excluding the self-employed), SMEs, and large enterprises adapt to demographic changes, including changes in the labour market
• “Circular Economy—It Pays Off” (call for proposals through 31 January 2027), for Polish companies seeking to grow their green economy skills in the area of low/zero emissions and the circular economy
• “Support for Companies in Temporary Difficulty” (call for proposals from 24 June 2024 to 30 April 2027), offering training and consulting for SMEs that for various reasons are experiencing business difficulties, caused for example by the economic crisis in the region, decline in demand for the company’s goods and services, a loss of qualified workers, or illness of key employees.

Conclusion

Support for the automotive sector can be seen on various levels, from legislative proposals to aid programmes, including upgrading of skills. But a review of national initiatives shows that the main purpose of this support is to develop zero-emission transport, reduce harmful emissions and improve air quality, rather than to empower and support the automotive industry as such in its difficulties. Like the energy sector, the automotive sector is already hard-hit by the shift to zero-emission mobility as part of the energy transition. It is expected that the supply of zero- and low-emission vehicles will grow, while charging and refuelling infrastructure will increase and be integrated with energy systems. The EU also needs to reuse and recycle batteries.

The sluggish growth of electric car production is a problem for the entire European automotive industry, and the effects can already be seen. The rising production costs and falling demand in the Chinese market (due to increased competition from Chinese manufacturers) are contributing to lower-than-forecast results for automotive companies—hence the decisions to reduce production, close factories, and lay off workers. And as soon as next year, the difficulties in transitioning from internal combustion engine cars to electric vehicles may attract fines for this sector for failing to meet CO₂ emission standards for new passenger cars and new light commercial vehicles, as indicated in Regulation (EU) 2023/851.

To meet the challenges facing the automotive sector, it is necessary to intensify efforts in many directions, with a full awareness of the needs but also responsibilities of both the public and private sectors. First and foremost, the pace of electric vehicle production should be accelerated through investment in cutting-edge technology and financial support for manufacturers. In view of the sector’s current financial difficulties, it is necessary to increase the availability of assistance programmes enabling automotive companies to survive the transition period. It is also necessary to continue programmes to improve the skills of auto workers so they can effectively adapt to the new market realities.

Dr Anna Kulińska, State Aid practice, Automotive practice, Wardyński & Partners