Potential for a made in Europe EV Battery value chain

Current Landscape and Progress

Europe’s quest to build a sustainable battery value chain has seen notable progress, particularly in the establishment of gigafactories. The region has announced around 54 gigafactories set to be operational by 2030, with a combined capacity of approximately 1.7 TWh . This expansion is driven by a burgeoning domestic market for electric vehicles, supported by EU CO2 standards for vehicles and initiatives such as the European Battery Alliance .

Despite China’s dominance in global battery cell manufacturing, holding an 80% market share in 2023, Europe’s efforts have been substantial. The region’s demand for lithium-ion batteries is projected to reach around 1,000 GWh by 2030, primarily due to the electrification of transport and the integration of energy storage systems .

Benefits of a Localised Value Chain

Localising the EV battery value chain in Europe presents several advantages. It offers greater control over manufacturing processes, allowing the EU to enforce stringent environmental and social standards. Additionally, local production reduces transportation emissions and leverages Europe’s significant share of renewable energy, leading to cleaner production processes .

From an environmental perspective, manufacturing battery cells and components in Europe could reduce carbon emissions by 20-40% compared to imports from China. For instance, local nickel sources could result in emissions 85-95% lower than current supplies from Indonesia, while European lithium could offer up to a 50% reduction in emissions compared to Australian ore processed in China .

Challenges and Risks

However, the journey towards a fully localised battery value chain is fraught with challenges. Securing the necessary raw materials is a significant hurdle. While Europe has made strides in lithium processing and nickel refining, many projects remain in their nascent stages and face local opposition .

Furthermore, the European battery sector faces stiff global competition. The US Inflation Reduction Act (IRA) and China’s well-established battery industry pose substantial threats. The IRA’s generous subsidies have already enticed several European companies to consider relocating their projects to the US .

Economic and Industrial Strategy

Building a competitive battery industry in Europe requires substantial investment. Estimates suggest that achieving the necessary battery cell manufacturing capacity will demand around EUR 100 billion in capital expenditure by 2030. If the full potential capacity of 1.8 TWh is realised, this figure could rise to EUR 175 billion .

To level the playing field with global competitors, particularly the US, Europe must provide robust financial support. An operational expenditure support of 10-16% for cathode and lithium production is recommended to match US incentives, ensuring that European companies remain competitive .

Conclusion

The potential for a Made in Europe EV battery value chain is immense, promising significant environmental benefits and economic opportunities. However, realising this potential requires overcoming substantial challenges, including securing raw materials, developing necessary skills, and ensuring competitive financial support. With the right policies and investments, Europe can build a sustainable and resilient battery value chain, contributing significantly to its decarbonisation goals and economic resilience.

Source: Transport & Environment