EU Could End Reliance On Chinese Battery Supply Chain By 2030 Says T&E
It’s well known that over the past decade, China has pretty much dominated the lithium-ion battery supply chain. It controls the supply of lithium as a raw material and virtually every step in the supply chain that goes into making that lithium suitable for making EV batteries. Why China has such nearly total command of the battery supply chain involves a detailed lesson in history and global politics.
Suffice it to say most of the so-called western world was perfectly content to let China take the lead and China was only too happy to oblige. The Chinese government foresaw the opportunities available in the transition to electric transportation and heavily subsidized those who sought to exploit them. The rest of the world dozed serenely while China was rushing full speed ahead into the future. Now that the EV revolution is in full swing, the chickens have come home to roost. Nations are waking up to the reality that unless they act decisively now, they will be as much in thrall to China for batteries as they once were to OPEC for oil.
A Call For A European Sovereignty Fund
Environmental advocacy group Transport & Environment has published a new report entitled A European Response to US IRA: How Europe can use its soft and financial powers to build a successful electric vehicle value chain. The summary states:
The European Green Deal is one of the world’s most ambitious climate policies to usher the European Union into the net zero economy by 2050. To happen, it will require a massive ramp up of technologies from wind turbines to electric car batteries, but the question is how much of the value will be captured by industry in Europe.
The global race to lead the production of these cleantech, as well as raw materials that go into them, has been unfolding for a few years now. Europe has secured much commitment and investment in the area of electric cars (EV) and batteries already. Dozens of billions have poured into scaling EV manufacturing and batteries. Over half of all lithium-ion batteries on the EU market in 2022 were produced in Europe, with the continent projected to become the world’s second biggest battery cell manufacturer by the end of the decade.
But the US Inflation Reduction Act (IRA), launched in August 2022, has changed the rules of the industrial game and might make companies re-prioritize the current announcements in Europe towards the US. For EVs and batteries, the risk is that the projects — and therefore Europe’s ambition — gets delayed. For critical metals and their processing, where Europe is only starting to catch up, the risk is that investments would simply go elsewhere.
In just a few months since the launch of the US IRA, investments into battery factories, new mines, and electric vehicles have mushroomed in North America. This is in response to the requirement that 40% of battery metals need to come from the US and half of all battery components made in North America from 2024 for the full EV tax credit to apply. The battery supply chain of an electric car will receive up to $50 of subsidy per each kWh of battery capacity, or over a third of the total battery costs today.
So far Europe has one of the most ambitious climate regulations in the world. The next step now is to beef it up with a robust industrial muscle to ensure we capture parts of the growing value chain.”
T&E concludes its study with a call for a dedicated EU fund with cash raised through joint debt issuance to aid investment into electric vehicles, batteries, and renewables. “Ultimately, the ESF should become the backbone of EU’s green industrial policy. There are clear benefits of joint borrowing from the standpoint of European governments. Given the different debt capacity of EU member states, joint borrowing allows for the states in a more precarious financial situation to still access financial markets, so ensure the best projects (rather than those in richer regions only) happen.
“Joint borrowing also provides better terms and conditions than what governments would be able to access on their own. Europe can’t compete with the likes of the US or China without a strong EU financial arm to back our industrial and climate ambition.”
Beefing Up The Battery Supply Chain In Europe
The Guardian says the T&E report shows two-thirds of Europe’s demand for cathodes — which are also used in batteries and contain critical raw materials — can be produced on the continent by 2027, with projects such as Umicore in Poland and Northvolt in Sweden contributing. However, the study’s authors warn that companies could still move projects planned for Europe to the US, tempted by the tax benefits and other subsidies provided by the IRA for localizing battery supply chains in the US.
Julia Poliscanova, senior director for vehicles and e-mobility at T&E, tells The Guardian, “Today half of the lithium ion battery cells used in the EU are already made there. But the Inflation Reduction Act has changed the rules of the game, and Europe needs to put more money on the table or risk losing planned battery factories and jobs to America.”
Last week, Britishvolt, the battery startup that had hoped to build a “gigafactory” near Blyth in Northumberland, collapsed into administration. The company struggled to find funding and was denied access to promised state funds after failing to hit government targets. Its failure has sparked calls for a comprehensive industrial strategy to map out Britain’s approach to the green economy, including the car industry’s switch to electric vehicles.
On Monday, Tony Danker, the director general of the Confederation of British Industry, said the government had failed to invest in the green economy and is falling behind the US and EU. He said the US and Europe are “outspending and outsmarting us” in their approaches to encouraging low-carbon investments. “While our competitors across Europe, Asia and the US are making their move, and going hell for leather, we seem to be second guessing ourselves and hoping for the best,” he said in a speech at University College London.
The CleanTechnica Takeaway
As we reported last week, the European Union is very concerned that the Inflation Reduction Act will undermine the competitiveness of its industries. There are a lot of conversations going on, with some suggesting the EU and the US (and by extension the UK) are on the verge of a trade war (and at least one US state saying no thank you to a Chinese company building a battery factory within its borders). But cooler heads will most likely prevail. There is no question European leaders will find a way to respond in a positive way to the twin challenges of Chinese supply chain dominance and America’s robust financial incentives for a broad spectrum of cleantech initiatives.
It’s going to be hard, especially with Russia’s continued aggression causing supply chain havoc in many industries, but the Continent — and hopefully the UK — will come out of this much further along on their carbon reduction mission. There is definitely a silver lining to this cloud — if the challenges can be overcome.
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