Europe Battery Factory Plans Are In A Shambles
On June 20, 2024, Reuters reported some rather shocking news regarding BMW and its electric car plans. The headline read, “BMW cancels $2 billion battery cells contract with Northvolt.” The report said that BMW had cancelled a 2 billion euros ($2.15 billion) order for battery cells for its electric vehicles with Northvolt. German media reported the Swedish company, co-founded by former Tesla battery engineer Peter Carlsson, entered into a long-term supply contract with BMW in 2020 but failed to supply the battery cells it promised on time. “Northvolt and the BMW Group have jointly decided to focus Northvolt’s activities on the goal of developing next generation battery cells,” said BMW. “The BMW Group continues to have a strong interest in establishing a high-performance manufacturer of circular and sustainable battery cells in Europe.”
Germany’s manager magazin, a respected industry source, said “Northvolt is the great hope of Europe’s car industry. The Swedes are to supply the industry with battery cells in the future. Now major customer BMW is losing patience with an order.” It’s hard to know what is going on behind the scenes. Although, there may be hints in the story below. BMW is enjoying solid sales gains with its electric cars and is on track to bring many new models to market in the next few years. Where it will get its batteries from for those cars is unclear at this time.
Scaling Back Battery Factories In Europe
The BMW announcement may be just the tip of the iceberg, however. According to Mining Weekly, as electric vehicle sales growth slows down, companies including Volkswagen, Stellantis, and Mercedes are scaling back or refocusing battery factory projects. Chinese manufacturers are slashing costs and the US is drawing away battery factory investment with lucrative subsidies. China already has excess battery manufacturing capacity, which allows them to make cells at a fraction of what it costs in Europe, and has a head start on the next generation of cell technology. All of this means the Continent risks falling further behind in the race to build and power the EVs of the future.
“As a European company we need to change our mindset — we are changing from teachers to become students because we have to catch up on a significant backlog of experience,” Sebastian Wolf, COO of Volkswagen’s PowerCo battery unit, said on the sidelines of the BloombergNEF conference in Stuttgart this week. “We have to all focus on becoming faster and becoming more cost efficient.”
Companies may cut back more on planned factories as European Union subsidies are hard to access due to bureaucracy and thin EV profit margins. Volkswagen may delay reaching full capacity for its €20 billion battery manufacturing program. Automotive Cells Company, a joint venture between Stellantis and Mercedes, has put two of its three planned battery factories on hold because of lower than expected demand for EVs. Even China’s Svolt has canceled a project in Germany because of uncertainties about subsidies and after one of its prime customers cancelled its contract with the company.
Asian Battery Companies Are Dominant
All those new factories also face competition from leading Asian battery manufacturers who are expanding into Europe. CATL, the world’s biggest cell maker, has a factory in Germany and is adding another in Hungary, while LG Chem has been making batteries in Poland for six years already, at the largest battery factory in Europe.
ACC CEO Yann Vincent said European companies still have a role to play, even though they are struggling. “It’s not to say that we are immediately competitive, there’s clearly an issue.” If Europe fails to establish its own EV battery value chain, large parts of the automotive industry — which account about 7 percent of the European economy — will shift their attention to Asia, just as customers for solar panels, consumer electronics, and computer chips are doing.
More and more it appears that Europe is unable to keep up with China, which has been developing battery technology for decades. It already controls more than 80 percent of the market and is leading on costs by a wide margin. China has recently begun offering cheaper battery cells that use no cobalt or nickel. That is what convinced ACC to step back and reassess whether it should be concentrating on LFP cells instead of the NMC cells it was planning to manufacture.
There is a report out today from the Center for Strategic and International Studies which says China spent $230.8 billion over more than a decade to develop its electric car industry. That’s why manufacturers in the US and the EU are having such tough sledding trying to compete today. It is also why the US and the EU have recently increased tariffs on Chinese-made cars so dramatically. There really is no way local businesses can compete when Chinese companies are so far ahead.
Whither Northvolt?
Mining Weekly makes particular reference to Northvolt, Europe’s biggest and most promising homegrown battery maker, which it says is focusing on “premium” NMC cells while the market is being flooded with cheaper Chinese LFP batteries. The European Union has recently boosted tariffs on electric cars imported from China but has not put similar trade barriers in place on Chinese made batteries to protect its local battery manufacturers. In addition, aggressive subsidies and tax breaks in the US and Canada are luring companies like Norway’s Freyr Battery to move overseas.
The European Commission and the UK have approved less than €7 billion in state aid for battery manufacturing since the start of 2022 — a fraction of the estimated $140 billion needed to reach the target of 1.4 TWh of battery manufacturing capacity by 2030. The US will dole out an estimated $160 billion in tax credit spending before 2029 for solar and battery cells, according to BloombergNEF. Canada committed to $25 billion in battery incentives last year, which attracted investments from Volkswagen and Stellantis.
“Europe really needs to wake up and provide a decent response,” Tom Einar Jensen, co-founder of Freyr Battery, said at the BloombergNEF event. “If Europe wants to move from reliance on Russian gas to reliance on only Chinese imported batteries, that probably is a discussion that needs to be more thought about in the current structure.” His comment echoes Europe’s energy crisis that hit Germany particularly hard after the invasion of Ukraine largely cut off gas supplies from Russia.
Developing Supply Chains Is Difficult
Developing self-sufficiency will be difficult. China not only makes the most batteries but also has a deep grip on the industry’s supply chain, especially the refining of key minerals like lithium, nickel, cobalt, and graphite, as well as the production of anode and cathode cell components. So far, the bulk of Europe’s investments have been directed more toward cell manufacturing than the mining and refining industries higher up the value chain, said Ilka von Dalwigk, senior technology and policy expert at EIT InnoEnergy, a venture capital firm co-funded by the EU. “Europe is a little bit in a dilemma in that we need to develop a completely new industrial value chain and we need to develop all parts simultaneously,” von Dalwigk said. “We need to do it quite fast if you want to secure some market shares compared to US and the Asian players.”
According to BloombergNEF, the world already has more than twice as much lithium-ion battery capacity as needed. Manufacturing capacity in China was already three times domestic demand last year and will rise to more than six times in 2025 if all factories planned in the country come online. That suggests aggressive price cutting will happen soon, much as is happening in the electric car sector at the present time. That creates a conundrum. On the one hand, consumers are demanding less costly electric cars. On the other hand, if all those cars come from China, local economies that depend on the auto industry will be devastated economically.
The Takeaway
Herbert Diess, who used to be the CEO of Volkswagen Group, is now chairman of Infineon Technologies, which makes computer chips. At the BloombergNEF event, he said Europe is better off focusing on complex solutions to help cars access renewable energy. “We should do what we can do best, and we should have China making what they can do cheapest and in good quality,” Diess said. Some might disagree, as his advice could lead to pandemonium in the European auto industry.
The ultimate question is what is going to happen in the electric car market when there is a significant oversupply of cars and batteries in a few years (if there isn’t already). A good guess is that there is a rocky road ahead for the EV revolution and people should keep their seat belts securely fastened until the ride comes to a complete stop.
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