Europe powers up in battery contest with Asia
Growing numbers of electric cars are being sold around the world, and more than half of the batteries that power them are made in China.
The worry that the EU will lose out in the fast rising industry is prompting Brussels to try and supercharge Europe’s battery sector.
A European Commission initiative called the Battery Alliance, aimed at forging tighter links among carmakers, governments and banks, held its second summit in Brussels on Monday.
EU sales of electric vehicles are set to boom from 126,000 in 2017 to 200,000 this year, according to figures from forecasting agency LMC Automotive. As demand ramps up both for cars and in-home power storage systems, the European battery market could be worth €250 billion by 2025, or a third of the global total, said Maroš Šefčovič, the Commission vice president for the energy union.
“We would be naive to think we can handle battery technology as a commodity that can be bought anywhere in the world” — Matthias Machnig
A fast-growing industry of that scale is beyond the reach of any single EU country, he said.
Some 51 percent of global battery manufacturing capacity is in China. That rises to 88 percent when South Korea and Japan are included, according to 2014 figures. That ties Europe’s electro-mobility push to technology developed and produced thousands of kilometers away.
The European idea isn’t to replicate a single battery champion in the way Airbus consolidated the aircraft industry. Instead, the plan is to better coordinate existing players, helped by better regulation, lots of government cash and a focus on research and development.
An industry-led action plan is due at the end of this month laying out 20 key priorities needed to forge progress.
“We are in the center of the biggest and deepest change in the automotive industry since its beginning,” Matthias Machnig, state secretary at the German economy ministry, said after the meeting. “We would be naive to think we can handle battery technology as a commodity that can be bought anywhere in the world.”
Rather than buying in bulk from Asia, the EU should develop a vibrant lithium-ion cell production industry that will keep Europe’s automakers competitive, he argued.
Without that, the car industry will gravitate to the cheapest source of production. Auto giants like BMW, Renault and Daimler already outsource cell production to Asia but do the packaging and final assembly themselves in Europe.
“We cannot differentiate ourselves by the cell used, but rather by how efficiently the battery system works,” one German car industry official said. “The situation could be different in the next generation of cell technology, the post-lithium ion technology that is expected to be ready for series production by 2025. However, from our point of view, this is not necessarily a business for a car manufacturer, but for suppliers.”
Sourcing batteries in Europe is going to be enormously expensive.
Volkswagen plans to launch 20 new electric models by 2020 and sell 3 million such vehicles by 2025 as it looks to steer past the Dieselgate scandal. To meet that demand, the carmaker would need a production site six times the size of Tesla’s gigafactory in Nevada, VW’s Chief Technical Officer Ulrich Eichhorn said in an interview last year.
“In Germany, energy costs alone would probably rule out a factory, so we’d have to find a solution for that,” said Eichhorn. His company estimates batteries will constitute some 30 to 40 percent of vehicle production costs.
Germany’s Daimler expects to open a facility near Dresden later this year to make its own cells, and the company plans to build battery plants close to its non-European factories as well.
“We put a great emphasis on building [batteries] in our own factories,” said Markus Schäfer, who deals with battery supply on the board of Mercedes-Benz, which wants to have six plants on three continents. “As we are close to our vehicle plants we can ensure the optimal supply of production.”
Despite the scale of the challenge, Monday’s summit resulted in only a trickle of money going to battery production. The European Investment Bank said it had approved a loan of €52.5 million for the construction of a battery plant in northern Sweden by Northvolt — its first investment in the sector.
As Europe works on multipoint action plans, Asian players are already stepping in.
South Korea’s LG Chem started work on its own production facility in the Polish city of Wrocław in 2016. The plant will have the capacity to churn out 100,000 car batteries each year, with the company promising it will be a “mecca of battery production” less than 200 kilometers from the German border.
That puts pressure on European countries to move quickly.
“If we don’t do it now we are out of the game for many, many years,” said Machnig.