Europe’s battery industry hit by EV slowdown and Chinese competition

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Europe’s nascent battery industry is reeling from the global slowdown in electric car sales, forcing companies to cancel or postpone projects that would have powered more than 2mn EVs for a year.

Slow consumer uptake and competition from Chinese cell manufacturers have led to a pullback in investment plans for about 158 gigawatt hours of forecast production in the region since the start of the year, according to lithium battery consultancy SC Insights.

“[The car manufacturers in Europe] are not putting in the orders for the batteries,” said Andy Leyland, managing director of SC Insights. A lack of long-term planning by European governments and carmakers will mean “the Chinese take big chunks of the [battery] industry”, he added.

European car companies have wound back on electrification plans after battery-powered vehicle sales only grew 2.4 per cent in the region in the first five months of 2024 to about 800,000 units from a year ago. In a sign of worsening demand, sales fell 11 per cent year on year in May alone, according to data from CRU Group, a commodities business intelligence company.

Battery start-ups in Europe have been hit by a series of major setbacks in recent months. Northvolt, the region’s poster child for domestic battery production, launched a strategic review last week, under which new factories in Germany, Canada and Sweden could be delayed. That decision followed the Swedish group losing a key $2bn contract with BMW after it failed to scale up production quickly enough.

PowerCo, Volkswagen’s battery arm, postponed indefinitely last year a decision to build a fourth battery plant in Europe after setting out in 2021 to build six by 2030.

Even some Chinese companies have pulled back in Europe. China’s Svolt abandoned plans in May to build a battery plant in Germany, citing uncertainty over planning, tariffs and subsidies, as well as the loss of a leading customer.

“The battery industry in Europe was one of big dreams, big money and a big rush, but now the shake-out is happening,” said one leading investor in carmakers and EV supply chain groups. “All the companies that are not backed by big conglomerates or are not Chinese will die.”

As a result of car companies scaling back plans to electrify their models, Rho Motion, an EV supply chain consultancy, cut its forecast for battery-run car sales in Europe by 15 per cent for 2030, compared with its previous projection last year.

One senior banker working on European battery projects expected further slowdowns and postponements of production plans but thought more cancellations were unlikely.

“It’s the constant pressure on cost and China’s ability to produce anything cheaper than anyone else,” they said.

Battery plants are complex, capital-intensive manufacturing operations, creating challenges for newcomers to consistently produce cells tailored to customer specifications at a scale large enough to bring down costs to the same level as Asian incumbents.

“We can beat them on product performance,” said Peter Carlsson, Northvolt chief executive. “We need to prove that we can match them in execution,” he added, on the company’s ability to manufacture batteries at scale.

Approximately half of the announced battery plants totalling 1,280GWh in Europe are at high risk of being underutilised or not built at all by 2030, according to CRU. By comparison, just over a quarter of the 4,413GWh and 1,262GWh announced for China and the US — where robust protectionist measures against Chinese imports have been introduced — are at risk.

Another problem faced by European cell producers has been their focus on more expensive, longer-range battery chemistries that use nickel and cobalt.

Cheaper, lower-range lithium iron phosphate (LFP) batteries, which Chinese producers specialise in, have kept improving and becoming cheaper, pushing car manufacturers to reconsider the suitability of those batteries for the European market.

ACC, a battery joint venture between Mercedes-Benz, Fiat and Jeep brand owner Stellantis, also paused work on its German and Italian gigafactories last month, citing the need to research lower-cost battery technology.

LFP batteries are set to make up 39 per cent of batteries used in EVs globally this year, up from 35 per cent in 2023, CRU estimates, yet they are set to comprise 52 per cent of cell output because of Chinese overproduction.

As well as battery producers exploring technology licensing and investment partnerships with Chinese rivals, analysts said there were signs European carmakers were turning to South Korean rivals.

Samsung SDI has picked up BMW orders lost by Northvolt, while on Tuesday Renault announced a multibillion-dollar deal with LG Energy Solution for LFP batteries produced by the South Korean group in Poland.

Renault’s EV unit Ampere said last week that it would also source LFP batteries from China’s CATL, which would reduce battery costs by 20 per cent from 2026 in conjunction with technology to pack in more cells.

“Less expensive, [LFP] is an important part of the economic equation for affordable electric vehicles and their democratisation in Europe,” Ampere said.

Tim Bush, a Seoul-based battery analyst at UBS, questioned whether European battery makers could withstand South Korean and Chinese competition in the long term.

“The Europeans have no meaningful production record, they can’t operate at scale and they haven’t secured their upstream supply chains,” said Bush.

“For the Asian battery makers, the question is how best to navigate this period of disappointing growth,” he added. “For the European battery makers, the question is whether they have a future at all.”

Additional reporting by Richard Milne

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