Europe’s Big Battery Ambitions Are Failing, and China Is Benefiting

Article content

(Bloomberg) — Europe’s bid to build a homegrown battery industry to break China’s dominance in electric vehicles is failing.

Article content

Article content

The most high-profile setback yet came with the Chapter 11 bankruptcy of Northvolt AB, a Swedish startup whose backers include Volkswagen AG and BMW AG. Fallout is spreading across the region as EV demand wanes and local manufacturers struggle to master the technology. Twelve out of 16 planned European-led battery factories have been delayed or canceled, according to a Bloomberg News analysis.

Article content

Meanwhile, 10 of 13 projects in the region by Asian manufacturers such as China’s Contemporary Amperex Technology Co. and South Korea’s Samsung SDI are on track. That suggests their grip on the sector will only increase, putting Western automakers at a competitive disadvantage when there’s a supply crunch or political conflict.

The development threatens Europe’s ambitions to establish a green economy that can challenge China, the biggest producer of electric cars and their components. The likes of CATL and BYD Co. have a years-long technology head start and are selling batteries at unbeatable prices. European rivals are grappling with scaling up production, and sluggish EV sales in the region have prompted their automaking customers to walk back electrification plans and cancel battery orders.

“The failure to establish domestic battery manufacturing capabilities threatens the very existence of the automotive industry in Europe,” said Andy Palmer, former chief executive officer of Aston Martin Global Lagonda Holdings Plc. Without a robust EV supply chain, carmakers “may relocate production to regions with established battery industries, leading to potential factory closures and substantial job losses.”

Article content

Article content

Building a European industry was always going to be a long shot. China supplies about 80% of the world’s lithium-ion batteries and is home to six of the world’s 10 largest EV battery makers, according to BloombergNEF. The country’s rapid expansion — its cell production capacity is already much higher than global EV demand — has depressed prices, raising the bar for new entrants. The US and Canada, meanwhile, are also looking to lure investments as jostling intensifies over who will dominate supplies when the combustion-engine era ends.

Mercedes-Benz Group AG and Stellantis NV — which is struggling with sliding sales and earlier this month ousted its CEO — have halted work on two battery plants in Germany and Italy as their ACC venture scales back its ambitions. Volkswagen AG, which is pushing for unprecedented cost cuts in Germany, has signaled its European cell factories may take longer to reach full capacity. UK battery startup Britishvolt Ltd. collapsed last year before it could open a planned £3.8 billion ($4.8 billion) site in Blyth. And then there’s Northvolt, which was considered Europe’s best hope for a local champion after amassing some $55 billion in cell orders.

Article content

Founded by former Tesla Inc. executives, the company had ambitious plans for factories in Sweden, Germany and Canada, but struggled to ramp up production while keeping a lid on costs. In June, BMW canceled a €2 billion ($2.1 billion) order due to quality problems. Three months later, Northvolt laid off a fifth of its workforce and scrapped two cathode material production facilities in Sweden — moves that failed to reassure investors. The manufacturer filed for bankruptcy protection in the US last month after racking up more than $5.8 billion in debt.

While Northvolt is looking for partners to keep going, experts say only an experienced Asian manufacturer can fix its technology shortcomings. A failure would make it very hard for another European upstart to catch up. CATL employs 21,000 engineers in R&D alone — that’s about four times what the Swedish firm’s entire workforce is going to be come January.

Northvolt’s struggles are “very regrettable,” German Chancellor Olaf Scholz said last week in Berlin.  “If we have electric cars in the future then we must also want a strategic component of the cars to be produced in Europe.”

Article content

Europe is missing out partly because its automakers were slow to shift toward battery technology. VW, BMW and Mercedes were still betting on gasoline and diesel engines when BYD — which started out making batteries for cellphones — introduced its first electric car in 2008. European automakers’ efforts to sell their profitable gas guzzlers as long as possible undermined a European Union push, started in 2017, to fast-track local battery projects and unlock more funding for homegrown suppliers. While Europe dragged its feet, China raced ahead, investing massively into its own domestic EV industry.

By the time Europe’s automakers went all in on electric cars, in 2021, CATL had become the world’s biggest battery maker and BYD was a major force in EV and cell development. The Shenzhen-based automaker has dethroned VW as China’s best-selling car brand and is expanding in Europe by setting up EV plants in Hungary and Turkey. CATL has a site in Germany and is adding another in Hungary, while South Korea’s LG Chem Ltd. has been making batteries in Poland for about six years.

Article content

Europe’s efforts to build local battery champions gathered steam in recent years, but the region is struggling with a dearth of skilled technicians and high energy costs, said Liana Cipcigan, a professor at Cardiff University. Meanwhile, establishing efficient factories has been more complicated than expected. Replicating high-yield production requires fine-tuning more than a thousand processes, making direct duplication of Chinese or Korean facilities virtually impossible.

“Making batteries is still hard — high capital requirements, cutthroat pricing and low margins, all in a high-precision manufacturing environment with demanding customers,” said Colin McKerracher, an analyst at BNEF. “The companies that are really good at it have been in business for a long time.”

Not all is lost. ACC, the Stellantis-Mercedes venture, last year opened its first major battery factory in Douvrin, northern France, a region that benefits from low-cost nuclear power. The factory employs over 800 people and hiring will continue next year, a spokesman said. Verkor, a French battery startup, is backed by Renault SA and plans to start output at a plant in Dunkirk next year.

Article content

But most automakers are now looking to Asian partners for cells after struggling to make them themselves or losing faith in European suppliers. Renault is relying on China’s Envision Group to make batteries for its mass-market models. Others have reacted to slowing EV demand by walking back electrification ambitions, and are lobbying the EU to abandon plans to phase out combustion-engine cars by 2035. The strategic hesitation could leave the region’s automakers further behind Asian competitors in securing cost-efficient EV technology.

Europe’s industry risks “competing in the lower divisions,” said Martin Winter, who heads a battery research center at Germany’s University of Münster. “We’ll get the same dependencies with batteries as we already have with oil and gas.”

—With assistance from Albertina Torsoli and Rafaela Lindeberg.

Article content