Recent research by S&P Global indicates that the European battery industry may face challenges in competitiveness and difficulties in achieving self-sufficiency. According to the its statistics, from 2018 to the first half of 2024, Europe has canceled 10 planned battery factories. These canceled battery capacities, compared to the expected growth in battery demand, may lead to a 72% shortage in battery supply in the electric vehicle sector alone. This nearly three-quarters demand shortfall will force Europe to continue to rely heavily on imports.
The research also lists the top five challenges facing the European battery industry:
1. Slowing Growth in Electric Vehicle Demand
It predicted in August this year that European battery demand will reach 1,852 GWh by 2028. This is 22% lower than the 2,382 GWh demand forecast released in August last year.
The lack of comprehensive incentives for both electric vehicle manufacturers and consumers, coupled with rising car prices, severely hampers the growth of the European electric vehicle market, thereby affecting battery demand and investment in local battery manufacturing. European automakers have had to adopt strategies of reducing production capacities and relocating to the US or Southeast Asia.
2. Shift in Battery Chemistry
91% percent of European battery factories produce nickel-manganese-cobalt (NMC) batteries, and the cancellations have mainly been focused on NMC battery capacities. The planned increases or shifts are towards lithium-iron-phosphate (LFP) batteries, reflecting a growing market preference for LFP batteries.
3. Inconsistent Government Support and Regulatory Frameworks
There is a general lack of government support in Europe, which hinders the potential for domestic battery production. A large number of bankruptcies among new battery makers before the completion of factories highlights the need for increased investment and clear regulations to support the local battery supply chain.
It is particularly worth noting that the process of obtaining planning approval for battery manufacturing facilities in Europe can be lengthy and complex, with each country having its own set of regulations and procedures, further complicating the approval process. For example, in Germany, a two-year final environmental approval period is considered quick, but actual timelines often extend to three to five years, depending on the complexity of the project.
4. Limited Development in Regional Critical Raw Material Supply
The institution also believes that Europe's self-sufficiency in critical raw materials is clearly insufficient, including lengthy permitting procedures, local residents' opposition to lithium mining development, reserve constraints in cobalt and nickel, and graphite processing capabilities.
The EU's Critical Raw Materials Act stipulates that by 2030, regional production should account for 40% of the EU's consumption for processing and 10% for extraction of these key metals. However, there is no new funding dedicated to supporting these ambitious targets. The limited availability of these materials within Europe creates vulnerabilities in the supply chain and a lack of clarity for those looking to invest in Europe.
5. US Subsidies Attract Manufacturers to Invest in the US
Due to the Inflation Reduction Act in the US, which establishes clear regulations and strong support mechanisms, including investment tax credits and tariffs, to enhance local production, an increasing number of battery manufacturers are relocating to the US. Particularly, with the election of former US President Donald Trump, the US may further increase the import costs of Chinese batteries and key materials, making it more competitive to establish local factories for local production in the US.
