Two and a half years after the end of the coronavirus pandemic, discussions about resilient supply chains and technological sovereignty are once again at the top of the agenda in Europe. The recent turmoil surrounding the chip company Nexperia, and the tense situation with semiconductors, have once again highlighted the dependence of important European industries on critical components from Chinese or US manufacturers. The automotive industry in particular is raising the alert.

Nexperia, caught up in the trade conflict between the US and China, is a warning sign. The supply problems faced by the Dutch company with its Chinese parent company are a warning of the short-term damage that geopolitical escalation can cause to the European automotive industry. The scenario of dangerous bottlenecks in the supply of battery cells or of raw materials essential for cell production has alarmed industry players and politicians in Europe.

Europe's dependence on non-European battery manufacturers has changed little in recent years. The insolvency of Swedish battery start-up Northvolt in March and the takeover of what was the beacon of hope for European car manufacturers by Californian battery specialist Lyten, announced in the summer, underscore the dilemma. According to the Karlsruhe based Fraunhofer Institute for Systems and Innovation Research ISI, China, which has market leader CATL, currently accounts for around 80% of global battery production capacity, followed by South Korea with 10%, and Japan with 2%. The share accounted for by European manufacturers is 0.5%.

„We are heavily dependent on Chinese manufacturers, which can lead to massive economic damage in the event of supply problems – similar to the situation with semiconductors", warns Harald Proff, Partner, Global Sector Lead Automotive, at consultants Deloitte. Security of supply, technological sovereignty, and cost stability are at risk. Proff insists that European companies must establish their own battery cell production. „Europe is being relegated to the role of price taker for this key technology, without any significant bargaining power.", he says. To secure a strong market position, Europe based companies need a share of at least 40% of European battery production.

The need for action was recognized some time ago. In 2017, the European Commission, EU countries, industry, and academia launched the European Battery Alliance to establish a competitive value chain for battery cell production. Three years later, a European Raw Materials Alliance was established. The goal: strategic autonomy in critical raw materials. However, this year in particular, in light of heightened geopolitical tensions, it has become clear that the progress made by these initiatives and support measures has not been sufficient.

In an open letter published in early September entitled „Who will make our batteries? Europe's moment of truth,“ the heads of three European cell manufacturers called for immediate and targeted support measures for the expansion of battery production in Europe. Yann Vincent, CEO of ACC (Automotive Cells Company, the French-German joint venture between Stellantis, TotalEnergies, and Mercedes-Benz), Benoit Lemaignan, co-founder and president of Verkor, a northern French battery start-up founded in 2020 and partner of Renault, and Frank Blome, CEO of Volkswagen's battery subsidiary PowerCo, launched in 2022 and based in Salzgitter, warn in the letter that without decisive action, Europe risks losing its strategic autonomy in a key technology of the 21st century.

While the US and China used massive subsidies to support their local production, European manufacturers, still in their start-up phase, ran the risk of being squeezed out before they even reached market maturity. They also demand competitive framework conditions, for example with regard to significantly lower energy costs in China, South Korea, and North America. The three CEOs argue that the consequences of inaction would be the shift of an annual market with a volume of 250 billion euros in favour of Asian imports, a lag in innovation and know-how, increasing dependence on non-European suppliers for critical technologies, and a strategic weakening of the European automotive industry.

Specifically, ACC, Verkor, and PowerCo are calling for the introduction of direct production subsidies based on delivery volumes, which would decrease over time. According to the proposal, public funds would only be released after delivery to customers. In addition, the battery manufacturers are advocating a supplementary protective measure: subsidies for the purchase of electric vehicles would have to be linked to an increasing proportion of European components. This would stimulate consumer demand and strengthen European supply chains at the same time.

The requirement is clear: Europe must strengthen its own industrial capacities along the entire battery value chain: from raw material extraction to cell production and recycling. In March of this year, the European Commission proposed direct production subsidies that would go beyond national state aid to include an EU-funded support mechanism. VW battery startup PowerCo welcomes the package of measures announced as part of an action plan for the European automotive industry to strengthen the domestic battery industry. Details are still to be finalised, however.

For Deloitte expert Proff, the EU's proposed 1.8 billion euro „battery booster“ is just „a drop in the ocean.“ In order to establish competitive European battery cell production by 2030, investments in the high double-digit billion range are necessary to cover 40% of local battery demand from domestic production. The scientific community sees similar dimensions. One gigawatt hour (GWh) of production capacity costs up to 100 million euros, according to Tim Wicke, a research associate at Fraunhofer ISI in Karlsruhe. „If the goal is to produce 100% of the cells ourselves and industrial demand grows to just under 600 GWh by 2030, that would be 60 to 100 billion euros.“ Due to the expected production waste and because capacity utilisation will not be at 100%, more capacity will have to be built up.

The development of economic battery production, which requires high process quality and sufficient scaling, is being hampered by the fact that battery demand is growing more slowly than expected. Some projects failed due to a lack of investment. At the beginning of 2023, for example, the British battery start-up Britishvolt had to file for bankruptcy. In 2024, the joint venture ACC justified the halt of construction of a battery cell factory in Kaiserslautern by referring to the electric car market in Europe, which was growing less rapidly than expected. VW subsidiary PowerCo, which plans to produce its first cells at its gigafactory in Salzgitter before the end of this year and to start cell production at new factory locations in Spain and Canada in 2026 and 2027, has announced that production will be „demand-driven and in line with the ramp-up of e-mobility.“

„Our product and production strategy gives us the flexibility to respond to different scenarios,“ said a company spokesperson. The standard factory concept allows production capacity to be built up in 20 GWh increments. In addition, PowerCo is planning a standard cell that is technology-independent and allows the use of a wide range of cell chemicals, including solid-state batteries. The standard cell is set to hit the road for the first time next year with the market launch of small electric cars from VW, Skoda, and Seat. Due to the slower ramp-up of electric mobility, VW has reduced its investment plan for its battery business over a five-year period from 15 billion to less than 10 billion euros. Investments by external investors are still on the table. The specific timing of opening up to partners depends on the market environment, according to the PowerCo spokesperson, who says that "we are not under any time pressure.“ An IPO remains an option in a second step.

Europe is running out of time to establish a competitive battery ecosystem. The battery industry points out that countries such as the US, China, South Korea, Japan, and Australia have understood that establishing their own battery supply chains is an essential component of industrial and location policy. Europe and Germany must also support projects in a targeted and unbureaucratic manner, especially against the backdrop of geopolitical tensions. The urgency with which the industry views these measures is demonstrated by a statement from PowerCo that, similar to the steel industry, „Made in Europe“ requirements could also be an effective tool for strengthening EU value creation for battery cells and batteries.