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Risks loom on the horizon

As competition intensifies, the fight for funding and profit gets tougher

of respondents see government financial support as the best way to grow Europe’s international battery market share.

Fortunately, battery manufacturing is a key part of the EU’s plans to decarbonise the transport sector under its Green Deal, which is designed to make the bloc carbon neutral by 2050.

What will it take for European battery manufacturers to grow?

Which of the following factors do you think would help the European battery market gain more international market share?

In 2021, the European Commission approved €2.9bn in support for research and innovation in the battery value chain. Fitch Solutions, meanwhile, estimates that global investment into battery manufacturing projects in 2020 totalled $21bn, and Europe accounted for 43.5% of that.13

Based on the cost of recent projects, McKinsey estimates that investments totalling $150bn are needed across Europe to meet the expected cell demand of 1,200GWh per year by 2040.14

What could hold Europe back?

There are significant pinch points in the process of increasing battery manufacturing capacity, and it could become a capacity constraint on the market.

One of those pinch points is cathode-active material and its manufacturing capability. Growing battery demand has already put pressure on scarce materials supply: global cobalt production in 2025, for instance, will have to be double that of 2016 to satisfy global EV demand.15

worry about the future availability of raw materials.

The greatest risks to the growth of Europe’s battery industry

Raw-material costs now account for 50–70% of total battery costs – up from 40–50% five years ago,16 so higher mineral prices would have a significant effect on companies’ return on investment. For 53% of respondents, a lack of return on investments for all but the market leaders is already one of the biggest risks to Europe’s battery industry.

If lithium or nickel double in price, battery costs would increase by 6%. If both lithium and nickel prices double at the same time, it would offset all the anticipated unit cost reductions caused by doubling battery production capacity.17 So battery and battery storage manufacturers should secure supply contracts from end-customers (such as automotive OEMs) before the battery plant is built.

Policy is another worry: will national governments continue to commit to Europe’s battery industry? Over the next two to three years, 45% of respondents worry that their governments will be over-incentivising hydrogen projects at the expense of battery storage technology.

Competing with hydrogen

To what extent do you agree that government in your country is now over-incentivising hydrogen projects at the expense of battery storage technology?

But for some who are already invested in the European battery space, there is no debate about what the alternative to the internal combustion engine will be. The future has already been won – by electric.

“The future is going to be electric – and that's probably what has reassured all car companies that they need to go in that direction as quickly as possible.”

FRANCISCO CARRANZA Vice President Sales and Marketing, ACC