EU’s Industrial Accelerator Act proposes tighter control of foreign investments in emerging strategic sectors

Background

The Industrial Accelerator Act (IAA), presented by the European Commission on 4 March 2026, is a new legislative proposal aimed at supporting EU manufacturers of low-carbon products and net-zero technologies, as well as businesses in energy-intensive sectors. The IAA aims to reduce the EU’s overreliance on third countries for the supply of key products, such as solar PV and battery energy storage systems. It includes various provisions designed to increase demand for environmentally friendly products of “Union origin” and make it easier to set up new manufacturing projects for such products, such as by cutting red tape and facilitating the financing of new projects.

At the same time, the IAA introduces new regulatory obstacles for non-EU businesses and investors. If adopted in its current form, foreign investments exceeding €100 million in value in certain “emerging strategic sectors” (battery energy storage solutions, solar PV technologies, electric and hybrid vehicles, and critical raw materials) from countries with significant global strength in the relevant sector will face additional regulatory scrutiny in the future, as addressed in more detail below.

Beyond this new foreign direct investment (FDI) control regime, amongst others, the IAA also introduces “Union origin” and/or low-carbon requirements for public procurement and public support schemes. These will apply to selected strategic sectors, notably steel, cement, aluminium, cars, and net-zero technologies (batteries, solar, wind, heat pumps, and nuclear), while establishing a framework that can be extended, where appropriate, to other energy-intensive sectors such as chemicals. In addition, under the IAA, authorities organising tenders (contracting authorities) for net-zero technologies, such as battery energy storage systems, solar PV technologies, hydronic heat pumps, onshore and offshore wind technologies, and nuclear fission technologies, must exclude bidders owned or controlled by an entity established in a third country that does not have an international agreement with the EU guaranteeing it reciprocal access to such public procurement tenders.

While the IAA is designed to protect Europe’s industrial interests, there is a risk that it may make the EU a less attractive destination for foreign investors. Europe needs foreign capital more than ever to support its industrial transformation, and this additional regulatory burden could discourage investment at a time when Europe needs it most.

Proposed control of foreign investments in emerging strategic sectors

The IAA introduces a new regime for controlling certain FDI in emerging strategic sectors, whereby investments that come within the IAA’s scope must be pre-approved by designated national authorities and, in some cases, by the Commission.

When does it apply?

The IAA’s investment control regime applies when the following conditions are met:

Sectoral scope: This new tool applies to investments in manufacturing in emerging strategic sectors, which currently include battery technologies and their value chain for battery energy storage systems, electric and hybrid vehicles and their related components, solar PV technologies, and the extraction, processing, and recycling of critical raw materials. The Commission may, in the future, add more net-zero sectors to this list of emerging strategic sectors, such as wind power technologies, heat pumps, hydrogen technologies, and electricity grid technologies, as well as nuclear fuel cycle technologies. Under the IAA, the Commission cannot extend this screening regime to digital technologies, AI, quantum technologies, or semiconductors.

Foreign investor: The investment must be made by a foreign investor from a country holding more than 40% of global manufacturing capacity in the relevant sector. Natural persons who do not hold the nationality of an EU country and undertakings established in non-EU countries are considered foreign investors. The IAA also applies to investments made by EU subsidiaries directly or indirectly controlled by the foreign investor. While the 40% global manufacturing capacity requirement is couched in neutral language, it squarely aims to tackle investments by Chinese entities, where most of the global manufacturing capacity for these sectors is currently located.

Investment target: The screening regime covers greenfield and brownfield investments in either companies established in an EU member state (“Union target”) or in immovable assets used or intended to be used for manufacturing products within the EU (“Union asset”).

Investment size: The new regime applies to investments exceeding a value of €100 million. Previous investments made by the foreign investor in the same Union target or Union asset following the adoption of the IAA will be aggregated when determining whether the investment is notifiable.

Level of interest acquired: All acquisitions of “control” are subject to review. The IAA defines control as the acquisition of 30% or more of the shares or voting rights in a Union target, or 30% or more of ownership in a Union asset. This is a lower threshold than the 50% threshold typically used as a marker of control under other EU-wide review regimes such as the EU Merger Regulation or the Foreign Subsidies Regulation (FSR). The 30% threshold takes into account in aggregate the shareholdings or ownership of all foreign investors in the relevant EU target who come from a country holding more than 40% of global manufacturing capacity in the relevant sector. As a result, even minor acquisitions could trigger a filing where pre-existing foreign investors from the relevant countries will retain their interests in the EU target.

Conditions for approval

For approval to be granted, investments must meet at least four of the following six conditions.

1. Ownership/control cap: The foreign investor may not, directly or indirectly, hold or exercise more than 49% of the shares, voting rights, or equivalent ownership interests in any Union target, or have equivalent ownership and control rights over a Union asset.
2. JVs: For investments structured as joint ventures with EU entities, the foreign partner may not exceed 49% participation in any JV entity, to ensure effective EU participation in management, technology transfer, and capacity building.
3. Know-how/IP licensing: The foreign investor must provide appropriate licences of relevant intellectual property rights and know-how to the EU target. All of the EU target’s pre-existing IP and know-how must remain exclusively owned by the EU target or the legal entity of the EU assets, while those jointly developed after the investment should be jointly owned by the foreign investor and the EU target, preventing the leakage of IP or know-how outside of the EU.
4. R&D commitments in the EU: The foreign investor must commit to R&D spending in the EU of at least 1% of the target’s gross annual revenue, proportionate to the foreign investor’s share of control in the target. R&D may involve funding to EU research institutions, collaborative projects, or in-house R&D activities.
5. Workforce quota: At least 50% of the workforce across all categories, including technical and managerial positions, must comprise EU nationals or non-EU nationals lawfully residing in the EU with a valid work permit. This requirement applies both at the time of implementation of the investment and continuously thereafter. The employees must benefit from adequate training and, in the case of brownfield investments or investments benefitting from public funding, the foreign investor must commit to maintaining the existing workforce. Investments must always comply with this condition to be approved by the designated national authorities.
6. Integration into EU value chains: The investor must publish online a strategy committing to prioritise EU sourcing and aim to source at least 30% of inputs used in products sold on the EU market from EU suppliers.

IAA approval decisions would further specify reporting obligations, and ongoing compliance will be monitored.

Proposed new regime to complement existing EU review tools

The proposed regime would complement existing EU review tools for foreign investments, including the EU Merger Regulation, the EU’s existing FDI screening framework, and the FSR. While the Commission could have sought to expand the scope of and further harmonise the EU’s existing FDI screening rules (currently under review) to cover the investments to be examined under the IAA, it justifies the use of a separate basis for review of the relevant investments on the grounds of the need to safeguard the economic security of the EU as a whole (as opposed to the focus on national security risks of EU member states under the EU’s existing FDI screening framework).

Accordingly, the IAA proposal contains an entirely new and separate review framework, including different filing procedures, deadlines, investigatory powers, sanctions for non-compliance, and rules for the sharing of competences between national authorities and the Commission. Notably, while covered investments are generally subject to primary review by designated national authorities, the Commission may assume jurisdiction to review certain cases at its own initiative, where they are capable of significantly impacting added value creation in the EU, or where the investment’s value exceeds €1 billion. This is a departure from the typical approach in FDI assessments under the EU’s FDI Screening Regulation, where the Commission has only an advisory role.

Exemptions

Three categories of foreign investments are exempted from review under the IAA: (i) investments by foreign investors covered by economic partnership and free trade agreements in force or provisionally applied by the Union, to the extent relevant commitments have been made (including investments made by EU subsidiaries of such investors); (ii) investments targeted at providing services (including by EU subsidiaries); and (iii) portfolio investments, defined as acquisitions of company securities intended purely for financial investment without any intention to influence management or control.

Outlook and next steps

The IAA proposal introduces several new rules for businesses active in emerging strategic sectors in the EU, such as battery storage, solar PV, electric vehicles, or critical raw materials. Businesses seeking to invest or operate in these sectors should carefully assess their exposure to these new rules.

If the proposal is adopted in its current form, foreign investors, in particular from China, will face yet another layer of regulatory complexity when planning large investments in emerging strategic sectors in the EU, on top of regulatory scrutiny under existing merger control, FDI screening, and FSR rules. Early engagement would be needed to navigate notification requirements, approval conditions, and ongoing compliance obligations.

The IAA proposal will now go through the EU legislative process, including stakeholder consultations and scrutiny by the European Parliament and the Council of the European Union, before its formal adoption and entry into force. Further adjustments to the IAA proposal can be expected.

Reed Smith’s Brussels antitrust and trade teams will continue to monitor the development of the IAA through the legislative process and stand ready to assist businesses in their assessment of the IAA’s practical implications for their operations and strategic objectives in the EU.

Client Alert 2026-054