Politically charged: How Europe is responding to surging battery capacity

By Jon Stibbs
Published: Friday, 01 November 2019

European battery production will more than double in the decade to 2025, according to industry association Eurobat. Jon Stibbs considers Europe’s political response to the growth of its battery sector.

Battery production capacity in Europe is set for a sharp increase in the next five years, demanding more flexibility from regulators to ensure Europe’s share of the industry is globally competitive. 

Speaking at Fastmarkets’ Battery Materials Europe 2019 conference on September 26-27 in Amsterdam, Gert Meylemans, senior communications manager at the Association of European Automotive & Industrial Battery Manufacturers (Eurobat), told delegates that Europe’s battery output capacity will increase to at least 1,000GWh by 2025. It was 440GWh in 2015.

Annual turnover in the European batteries industry is forecast to soar from $65 billion to more than $150 billion over the same period, the association said.

According to the European Commission (EC), "securing a sustainable supply of raw materials" will be essential to the market’s development. 

"The EU industry is far from being self-sufficient in all [parts] of the value chain," the EC said in a paper on the lithium-ion battery value chain and related opportunities for Europe in July 2019, adding that "investment is essential to respond to new opportunities presented by the [electric vehicle (EV)] market."

The rapid escalation in output forecast by Eurobat will see lithium-ion batteries overtake lead-acid batteries in terms of value in Europe for the first time. 

Nicolo Campagnol, senior knowledge analyst at consultancy McKinsey & Co, told delegates in Amsterdam that Central Europe was emerging as a major location for new cell manufacturing plants, due to low labor costs and its proximity to car-producing countries such as Germany.

Norway also has a strong batteries manufacturing sector due to the low cost of energy from hydro plants and the high rate of domestic EV adoption.

The expansion of European battery manufacturing means new trade patterns will need to be established for increasingly large quantities of battery minerals, including lithium, graphite and cobalt, which are produced primarily in China, Africa, South America, Australia and Russia and processed in Japan and South Korea.

One way of developing secure supply chains would be to invite recognized battery makers from Asia to set up operations in the EU, bringing in their own sourcing and logistics.

But enticing Asian companies to set up in Europe is likely to require incentives beyond local market opportunities - an issue that is proving politically sensitive for the EU, which is firmly against anti-competitive behavior.

State aid

Despite pledging its support for the lithium-ion battery industry - stating in its July 2019 paper that the sector represents "an opportunity for high-value job creation and increased economic output [and] a more secure and resilient energy system with an ambitious climate policy" - the EC has, so far, taken a cautious approach to the sector, compared with parallel efforts in Asia and North America.

This caution has manifested itself partly in the EC’s refusal to relax its rules against state aid simply to promote its growth, subjecting all plans for state investment in battery plants to commission investigations.

On October 14, the EC announced an investigation into Hungary’s €108 million ($120 million*) pledge to help fund Samsung SDI’s battery cell production expansion in Göd, Hungary, the original phase of which was completed in 2017.

To date, state aid investigations have tended to go the way of battery developments.

In January this year, the EC approved the Polish government’s €36 million investment in South Korea’s LG Chem for a new EV battery plant in the Dolnoślaskie region of southwest Poland, near the border with Germany, ruling that the funding was in line with EU state-aid rules. 

The new vertically integrated plant is expected to supply batteries for more than 80,000 EVs per year in the European Economic Area (EEA) and is LG Chem’s second battery plant in Poland – the company having already commenced construction of a 100,000-unit-per-year battery plant at Kobierzyce, also in the southwest of the country, in early 2018.

Some powerful European economies have suggested relaxing state-aid rules for more European government investment in key technology sectors, such as microelectronics and batteries.

France, Germany, Italy and the UK launched a €1.75 billion five-year microelectronics project last year - a model France and Germany would like to emulate for EV batteries. 

EU Competition Commissioner Margarethe Vestager has taken a dim view of loosening restrictions on government support, however. And she made her feelings clear when she blocked a merger between German and French train manufacturers Siemens and Alstom in February 2019.

"A company is not going to be competitive abroad if it does not have any competition at home," Vestager said of the EC’s decision to block the merger. "Unchallenged companies are not likely to be innovative, flexible or efficient… in the global marketplace."

Vestager’s re-election for a second term in charge of the EU Competition Commission means the bloc’s stance on this matter is unlikely to change any time soon. But market participants at Fastmarkets’ industry gathering in Amsterdam were largely in agreement that Europe needs to do more to support the local battery industry if it is to achieve ambitious technological, climate and economic goals.

*Conversion made October 2019