The European electric vehicle industry is developing at pace, and to make this possible, countries in the region are keen to develop as much of the technology locally as possible. This is why investment into locally produced battery technology has been so extensive in recent years, with an estimated €38 billion raised since 2017. Many of the home grown battery producers are funded by the car industry, such as Verkor, backed by Renault, and ACC, backed by Stellantis and Mercedes, both of whom are constructing gigafactories to ramp up local production, writes Vijay Amritaj.
Verkor recently received €2 billion in funding to build a new production facility in northern France, positioning it as the second fastest growing company in the region. The aim of the new gigafactory is to supply Renault with batteries initially for its Alpine range, and later for further models. So far, they are still aiming for their initial goal of producing 10GWh by 2026 and 20GWh by 2030, having avoided reducing their targets for the first few years of production unlike some of their European counterparts. They are also innovating, both in terms of technology by using silicon-based anodes, and in production processes to ensure that they are on top of the latest methods.
However, European battery technology is still overshadowed by production from Asian firms; South Korea represents 74% of the European battery market, while China has been ramping up production to achieve a 12% capacity, compared to just 15% for European-owned production. The Asian producers have been in the industry for 30 years, giving them a significant advantage in development of the technology and supply chains. European firms are racing to keep up, but struggling to overcome some regional blockers. The outcome of this has been some high impact failures, such as the closing down of Northvolt, a Swedish firm whose facility has been bought by a US company.
The difficulties for European entrants
The challenges of breaking into the market are multifaceted. The scrap rate for newly online factories is particularly high for European entrants who have less expertise in this area, causing delays and high setup costs. Supply chains are also a significant constraint; many of the components and raw materials currently come directly through China, putting factories on the European continent at an economic and logistical disadvantage.
ACC, the current European leader in battery technology, has been facing significant difficulties in surpassing regional obstacles. They planned to create three gigafactories to supply batteries for Mercedes and Stellantis, but have had to scrap two of the projects. High scrap rates and difficulty calibrating the facility have required them to bring in expertise from China, and made it difficult to compete for orders even with their investors.
Another factor is energy prices which are higher and more volatile in Europe, increasing base level running costs. Average European industrial energy prices sit at around $0.212/kWh whereas the Asian equivalent are 0.108/kWh, less than half. This is due to high taxation and policies to encourage decarbonization, but the outcome is that it makes it harder to compete against Asian giants in industrial projects.
“Made in Europe” is a choice
However, the attraction of maintaining sovereignty of the production of batteries is still high. Europe is one of the global leaders in car manufacturing, and to maintain this status they need to control the battery technology as well. Developing a local battery technology industry is not just about EV batteries. With the transition to renewable energy, battery technology is needed to maintain stability of the grid, and producing cells in Europe would provide more energy security. With the move away from fossil fuels, the EU is keen to remove as many risks as possible to the energy supply chain and to this end has finalized the Net-Zero Industry Act to promote local production, with a target to produce 90% of battery cells within the union by 2030.
Part of this requirement will be to ramp up the production of components, including sourcing raw materials such as graphite and nickel locally. The target is ambitious, with the goal of extracting 10% of raw strategic minerals locally, and so far progress is being restricted by legal and administrative blockers. Owning the supply chain of raw materials does not have to look like new extraction; full cycle recycling of existing batteries can provide a lot of these materials. Renault is investing heavily in ‘The Future is Neutral’, an initiative to develop a circular economy for lithium-ion battery cells. This is another area that Europe could excel in.
But the growth of the European industry is not just about policy, there is also a responsibility for European car manufacturers to choose European batteries. At present, most of the batteries used in EVs constructed in Europe originate from Chinese or Korean facilities; to change this European car manufacturers need to make a strategic choice to support local producers while their factories ramp up. This is particularly true for those who have funded the facilities, as in the case of Verkor who should be able to expect to sell their batteries to Renault without fighting against Asian competitors, and likewise ACC with Mercedes.
Local governments need to provide the conditions to allow companies such as Verkor and ACC to grow and develop without being outcompeted by their Asian counterparts. This includes creating an attractive investment environment for companies further up the supply chain, as well as supporting the development of a skilled workforce. Maintaining financial and legal support for companies as they scale up will also matter. Together, these initiatives will create a policy environment that favours local entrants and will allow them to compete on the global stage.
