The Market Demand
Electric vehicles (EVs) have become an unstoppable trend in the automotive industry. In October 2022, the Council of the European Union and the European Parliament reached an agreement to move towards zero emissions from motor vehicles. Their mandate stipulates that by 2035, no internal combustion engines will be permitted for sale in the EU. Mirroring this trend, despite a contraction in the European automotive market in 2022, EV sales soared to more than 1.1 million units – a 20% increase from 2021 – accounting for 12.1% of total new vehicle sales for the year, according to data released by the European Automobile Manufacturers Association (EAMA) on February 1, 2023
The rising demand for electric vehicles is driving a parallel growth for EV batteries. Serving as the engine of EV technology, battery investments represent a lucrative opportunity for European battery manufacturers and car manufacturers, as well as the broader European economy. With strong support from the European Commission, the European Battery Alliance (EBA) was launched to promote and develop local production of battery cells. The goal is for local battery manufacturers to meet 90% of the market demand by 2030. Furthering this effort, on December 9, 2019, the European Commission approved a fund of €3.2 billion (US$3.53 billion) to support R&D projects across the entire battery value chain. Consequently, Europe’s EV battery market size reached a value of US$6.61 billion by 2022 and is expected to grow at a compound annual growth rate (CAGR) of 11.75% between 2022 and 2027 reaching US$11.52 billion in 2027 (Figure 1).
The Emergence of European Gigafactories
As Europe has become the fastest growing region for EV lithium-ion battery capacity outside of China, a cluster of Gigafactories are being set up near European car manufacturers. Major installations include LG Chem’s Wroclaw plant in Wroclaw, Poland; Northvolt Gigafactory in Skellefteå, Sweden; and Samsung SDI in the Czech Republic. In addition, several smaller companies have also set plans to expand in the battery market. The British Faradion, for instance, intends to build a new factory in the UK, while the French company Blue Solutions has announced plans to invest €100 million (US$107 million) in its southern-France based battery factory, aiming to increase its annual EV battery production capacity from 1,000 to 10,000 EVs.
The investments demonstrate the growing interest in the EV battery industry across Europe. This increased investment has the potential to reduce the cost of EV batteries and improve their performance, making electric vehicles more affordable and accessible to consumers. Additionally, the investments are expected to create jobs and stimulate economic growth across the region.
Dominant Global Players in the Battery Industry
The global EV battery market is currently dominated by players from three Asian countries: China, Japan, and Korea. (See Figure 3). Data from SNE Research reveals that, in 2022, the five leading manufacturers – CATL, LG, Panasonic, BYD and SK On – collectively held over 75 percent of global automotive battery production. To sustain their market position, these firms have adopted strategies such as new product developments, M&A, supply contracts, partnerships, expansions, collaborations, contracts and agreements.
The Nordic startups
A highlight of the European EV battery sector is the green development led by Nordic countries, particularly Sweden. Situated just below the Arctic Circle, a vast factory owned by Northvolt AB is producing EV batteries for Europe’s leading automakers. Meanwhile, on Sweden’s west coast, Heart Aerospace AB is developing an electric aeroplane by United Airlines and Air Canada. In the capital, Stockholm, the startup X Shore AB has developed a US$99,000 battery-powered vessel.
Northvolt, a notable new entrant, is placing Europe in a prime position to disrupt the dominance of established battery suppliers. Having secured almost US$8 billion in funding from a diverse group of investors, including Goldman Sachs Group Inc. and Volkswagen AG, Northvolt signed a contract worth US$55 billion with automaker giant, Volvo, in February 2022. By May 2022, it initiated commercial shipments from its factory in Skellefteå, and by 2026, Northvolt expects to employ 4,000 employees at this site, producing enough cells annually to power one million cars. Furthermore, two more factories are currently in the works, one near Gothenburg and one in northern Germany.
With the highest per capita tech investment in Europe, Sweden has merged as a thriving hub for greener transportation. A skilled workforce, substantial investment capital for climate projects, and an ample supply of renewable energy resources have helped the country of 10 million to become a leader in clean-technology startups.
The Chinese suppliers
Recognizing the strategic value of the European market, Chinese EV battery makers are securing their market position by establishing gigafactories, investing along the industrial supply chain, and contracting with major automakers. Currently, three leading Chinese EV battery firms have already planted their footprints in Europe: Contemporary Amperex Technology (CATL), BYD Europe, and Farasis.
CATL, the world’s premier battery manufacturer, is supplying batteries to Tesla’s Berlin Gigafactory. In August 2022, CATL announced a colossal investment of €7.34 billion (US$7.4 billion) into a 100 GWh battery plant in Debrecen, Hungary, targeting suppliers like Mercedes Benz, BMW, and Porsche. This, coupled with its other investments, gives CATL a 27% market share in Europe, second only to LGES (LG Energy Solutions).
BYD Europe is another leading Chinese EV battery maker and has a factory in Komarov-Esztergom, Hungary. A key supplier for Volvo’s Belgian gigafactory, BYD Europe is heavily investing in new technologies and materials to enhance their batteries’ performance and affordability.
Farasis, a Chinese battery maker specializing in high-performance and reliable EV batteries, has established its European factory in Wolfen, Germany, primarily Daimler and BMW as its main clients.
Moreover, Automotive Energy Supply Corporation (AESC) – a joint venture between Nissan and NEEC – is expected to supply batteries to Renault’s gigafactory in Douai, France. This partnership emphasizes the importance of developing advanced lithium-ion batteries for the automotive industry.
Besides these major players, numerous Chinese companies are expanding their reach through the European EV industry’s supply chain.
China’s Advantages in Lithium battery supply
China’s dominance in batter production is based on two key advantages. Firstly, the country’s massive production capacity. Home to six of the world’s top ten battery manufacturers, China boasted almost 900 GWh of manufacturing capacity in 2022 -77% of the global total. China’s battery companies are ramping up to meet the surge in European battery demand. Secondly, China’s EV battery factories benefit from access to a stable supply or a range of raw materials, including lithium, cobalt, nickel, graphite, and manganese, which facilitates cost-effective production. Additionally, Chinese EV battery firms have consistently adopted cutting-edge technology and advanced manufacturing processes, enabling them to produce batteries with advanced characteristics, such as increased energy density and longer lifespans.
Challenges for China’s Suppliers
Despite the prospect of European investments due to the growing market demand and ambitious plan to become a low-carbon society and enter a zero-emission era, Chinese battery manufacturers face significant obstacles. Some challenges include stringent local policies and regulations, high investment costs, and lack of international talent, with policy and regulation being the most prominent issue.
In March 2022, the European Parliament adopted the New EU Battery Regulation, aiming to drive a green and low-carbon transition in the battery industry. The new regulation introduced stricter requirements. Starting July 1, 2024, only batteries with a declared carbon footprint can enter the European market. Furthermore, starting in 2027, there will be a prohibition on the sale of batteries in Europe that exceed the maximum carbon footprint limit. The EU is also mandating battery recycling, reusing metals such as nickel, cobalt, and lithium, to reduce environmental and raw material pressures.
In addition, the EU will enforce due diligence on the entire battery supply chain. This will include evaluating the social and environmental risks involved in every process, from raw material refining and cell production and battery use. This new series of regulatory policies will undeniably boost the positioning of local battery companies in Europe and compensate for their disadvantages in terms of product costs.
In conclusion, as Europe transitions towards a more sustainable future, the role of electric vehicles and their batteries continues to grow in significance. With strict environmental regulations and a high demand for EVs, both local European companies and foreign suppliers, especially those from China, are engaging in fierce competition to secure their share of the promising European battery market. As these players navigate the challenges of strict regulations, high investment costs, and talent shortages, their strategies will shape the future of the industry and, by extension, the role of electric vehicles in our society.