The European Commission wants the Old Continent to switch to electricity. It aims to tackle climate change and increase the EU’s share of global battery production. But watch out for lithium.
The urgency of an industrial policy is not new. One of the first successful examples of European industrial collaboration was the aircraft manufacturer Airbus. But after a generation of focusing on cutting state aid, the pendulum is swinging back and the European Commission has approved plans to pump public funds into semiconductors, the cloud and electric batteries.
Two main drivers underlie this change of direction. The first is climate change. Europe needs to decarbonize its energy and automotive sectors. The second concerns competition between the United States and China, which encompasses several sectors – semiconductors, cloud tech, batteries – and which, according to Brussels, requires public intervention.
The car battery crusade in Europe represents a crucial test. the European Battery Alliancedesigned to “create a competitive manufacturing value chain in Europe with sustainable battery cells at its heart”, will spend 3.5 billion euros on research and production to build gigafactories.
The European automotive industry is crucial, both for its disproportionate impact on European economies and for its climate change objectives. According to the International Energy Agency (IEA), the path to net zero carbon emissions by 2050 will require a 36% annual increase in electric vehicles. This means that 245 million electric vehicles (EVs) should be on the road worldwide by 2030.
This objective faces difficult competitive challenges. Three major Asian companies now account for 67% of the global battery market. CATL, the Chinese lithium iron phosphate (LFP) battery giant, supplies almost all European car manufacturers. The Japanese Panasonic is the other big producer.
China has a total production capacity of 465 GWh (78% of the world total), far ahead of the combined 18% of the United States and Europe. According to projections by McKinsey & Company, Beijing will reach a capacity of 1220 GWh by 2025. In contrast, Europe will have only 479 GWh and the United States “only” 289 GWh.
If these trends continue, European demand for batteries will reach 10 to 15 times its current production volume by 2030. European manufacturers are realizing that they must adapt to increase their production or risk losing the European market to the profit American giants, like Tesla, or Asian manufacturers.
Some progress is visible. The Swedish Northvolt has recently announcement he had successfully produced his first battery cell. If all goes well, the production of lithium-ion cells in Europe (EU-27, Great Britain, Norway and Serbia) will more than double by 2030.
A total of 35 lithium-ion production projects have been announced in Europe. In Italy alone, the government is supporting and using European pandemic recovery funds to revive Stellantis’ Termoli factory, which is set to start production by Italvolt, and the FAAM group is also developing its own gigafactories.
Critics complain that Brussels should focus less on public subsidies and more on tightening regulations on CO2 emissions. A recent study by Transport & Environment, an NGO campaigning for clean transport, laments that Europe’s current rules are undermined by loopholes. Without eliminating them, he predicts that “the current electric vehicle boom in Europe will decline from 2022”.
But the shortage of raw materials could undermine these ambitions. Over the past two years, cobalt, nickel and lithium prices have increased by 119%, 55% and 569% respectively
Lithium supply is of particular concern. According to BMI, the deficit could reach a stratospheric volume of 300,000 tonnes of LCE (lithium carbonate equivalent) by 2030. Unlike nickel, cobalt and manganese, lithium remains irreplaceable for battery performance. Unless more mine sites are opened, Europe’s e-mobility revolution could end in the slow lane.
The unanswered question is that of the proper role of state intervention. Despite the success of Airbus, collaborative industrial companies on a European scale suffer from a poor balance sheet. In the 1970s, huge sums of money were thrown at ICL, Bull and Philips by their respective national governments in an effort to produce a national champion to challenge the power of American technology giants such as IBM. In 2008, the French government (with German support) launched Quaero, a European search engine to compete with Google. After spending almost 100 million euros of French taxpayers’ money on the company, the government pulled the plug.
Will the European battery crusade meet the same fate?
Alberto Prina Cerai is an independent analyst, contributing to CEPA partner Formiche.net.