On 12 September 2017, the European General Court dismissed an appeal by Bayerische Motoren Werke AG ("BMW") against a European Commission ("Commission") decision which only partially approved German State aid for BMW for the production of electric passenger cars. The General Court ruled that the full amount of aid initially granted was not necessary for BMW to undertake additional investment in the region.
In November 2010, the Federal Republic of Germany notified the Commission of its plans to grant aid amounting to around €45 million to BMW for the construction of a production site for the manufacture of the BMW i3 electric car and the i8 hybrid rechargeable car in Leipzig, Germany.
When considering State aid, the Commission guidelines on regional State aid (2007 - 2013) provide that it will apply stricter criteria in cases where the beneficiary of the aid has a market share of more than 25%. In its decision of July 2014, the Commission left the market share of BMW open, but nevertheless applied the stricter criteria, arguing that it has a discretion to do so and, as a result, found that only €17 million worth of the aid was compatible with EU rules. BMW subsequently appealed this decision, but this appeal has now been dismissed in its entirety by the General Court.
The General Court upheld the Commission's approach and confirmed the Commission's view that one of the main reasons for the reduction in the aid was the (partial) lack of an "incentive effect" of the aid. According to the Commission, regional aid is only proportionate if the amount and intensity of the aid is limited to the minimum needed for the investment to take place in the assisted region. In this particular case, the Commission's view was that €17 million worth of aid reflected the additional comparative costs of building the production site in Leipzig rather than Munich. The General Court held that BMW had not demonstrated that an amount of aid in excess of €17 million was required to motivate BMW to undertake an (additional) investment in the assisted region, given that BMW's decision to invest in the production of the i8 car in Leipzig in 2011 came after BMW's investment decision for the i3 in Leipzig in 2009 and when this project had already commenced.
In light of this, according to the General Court, the additional aid amount of approximately €28 million would have negative distortive effects on competition, as it might discourage competitors and private investors to invest in similar products in the relevant market.
The General Court's decision reaffirms the importance of the incentive effect of State aid. Beneficiaries must prove that the State aid is necessary for the realisation of a specific project. Thus, projects which would be realised in any event (i.e. independently of whether State aid is granted) are not eligible for State aid and the Commission may declare State aid to be illegal without having to examine any further potential positive effects of the aid.
It remains to be seen whether BMW will appeal the decision to the European Court of Justice.
With thanks to Franziska Sauer of Ashurst for her contriubtion.
All articles in the October edition of the Competition Newsletter
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