Slovakian Grant to JLR Draws EU Regulators’ Scrutiny

BRUSSELS – The burgeoning automobile-manufacturing sector of Slovakia in central Europe is paying close attention to an inquiry by the European Commission, the European Union’s executive branch, into how its government supports the sector.

The pending decision by the Commission, which has power to ensure national governments do not distort the EU’s single market by subsidizing local industries, could have significant implications for the future of auto production in Slovakia.

The Commission’s decision will indicate just how far it is prepared to allow the Slovak government to spend on supporting local automakers. This particular inquiry focuses on the country’s plans to grant €125 million ($139 million) to Jaguar Land Rover for investing in a car plant in Nitra in western Slovakia. The Commission is deciding whether this money complies with EU rules on regional state aid or not – in which case the money cannot be granted.

EU competition Commissioner Margrethe Vestager said in announcing the inquiry last month: “It is a good thing if public investment fosters economic growth in (EU) member states. However, we need to avoid harmful subsidy races between member states.

“The Commission will carefully investigate if Slovakia’s planned support is really necessary for Jaguar Land Rover to locate its investment in Nitra and is kept to the minimum needed, (or) if it distorts competition or harms cohesion in the EU.”

When JLR announced its plans to expand production into Slovakia last September, it said the “first cars were expected to come off the production line in late 2018.” These business plans, however, might have to be adjusted, as EU state-aid inquiries can take a long time.

A Commission official tells WardsAuto there are no deadlines in state-aid investigations and the timing of any decision would be impossible to anticipate. “The length of a procedure can depend on a number of different factors, such as the complexity of the case and the level of cooperation from the member state concerned,” the official says.

Should the Commission approve the grant, Slovakia would become the fifth country after the U.K., China, India and Brazil – and the first in mainland Europe – where the British car brand will build a production facility.

JLR plans a 3.2 million-sq.-ft. (300,000-sq.-m) factory designed to manufacture all-new, high-tech aluminum lightweight vehicles. The plant will cost more than €1 billion ($1.1 billion) to build and equip and have annual capacity of up to 150,000 units.

A note from the Slovak Investment and Trade Development Agency indicates the plant would assemble premium SUVs, which JLR already sells worldwide.

“Our new manufacturing plant will create thousands of high-quality jobs, as well as deliver sustainable economic growth for Nitra, a regional development area of the EU,” says Stephanie Jones, the automaker’s international communications officer.

More than 40,000 people have expressed interest in competing for the designated 2,800 plant jobs. To ensure they are properly skilled, JLR is creating education programs providing further qualifications and plans to bring unemployed people back to work by “preparing them for roles in the automotive industry.”

The company would be investing in a well-established auto sector. The secretary-general of the Automotive Industry Association of the Slovak Republic, Jan Pribula, lists the strengths of the Slovak auto industry: “A developed supply chain; skilled and motivated people; located in the middle of Europe; member of the EU; member of the eurozone.”

The Slovakia auto sector has been growing over the past 20 years, with association statistics estimating more than 1 million cars will be produced there by year-end. Some 26% of Slovakia’s gross domestic product is generated by industrial production, and car manufacturing has become a driving force for the economy by generating 12% of the national GDP.

Its main export markets are populous countries such as Germany, Russiа, the U.K., China, France and Italy, the Slovak Investment and Trade Development Agency said in a 2016 report. The three main automakers that already have located in Slovakia are Volkswagen, PSA Group and Kia.

For the moment, JLR and the government both assure WardsAuto they will be working closely with the Commission throughout the investigation. “Given the size of the investment and the notified state aid in Brussels, it is natural that the Commission will examine the investment process in detail,” says Maros Stano, a spokesman for Slovakia’s Ministry of the Economy.

For the British car brand, “Slovakia’s offer of support was a necessary component in Jaguar Land Rover’s decision to select Europe rather than Mexico for this investment,” says spokeswoman Jones, who notes Mexico and Slovakia were the two shortlisted locations that met the automaker’s suitability criteria.