In a surprising turn of events, BMW terminated a $2 billion battery cell order with Northvolt, a Swedish battery manufacturer.
Despite a 2020 agreement for long-term supply, Northvolt failed to deliver as promised, prompting BMW to seek alternative sources for its growing electric vehicle lineup.
While BMW emphasizes its continued commitment to European battery production, the cancellation raises questions about the stability of the region’s battery supply chain.
Scaling Back Amidst Challenges
The BMW-Northvolt incident seems to be part of a larger trend. Volkswagen, Stellantis, and Mercedes are also reevaluating or downsizing battery factory projects in Europe. Factors like slower EV sales growth, aggressive price cuts by Chinese manufacturers, and enticing subsidies in the US are contributing to this shift.
China’s dominant position in battery production, with excess capacity and lower costs, further exacerbates the challenges faced by European companies.
As European firms grapple with setbacks, leading Asian battery manufacturers like CATL and LG Chem are expanding their presence in Europe. CATL already operates a factory in Germany and is constructing another in Hungary, while LG Chem has been producing batteries in Poland for six years.
This influx of Asian players intensifies competition and raises concerns about the long-term viability of European battery ventures.
The Looming Threat of Chinese Dominance
China’s decades-long investment in battery technology has resulted in a commanding 80% market share and significant cost advantages. Their recent introduction of cheaper cobalt- and nickel-free battery cells is prompting European companies like ACC to reassess their technology choices.
Reports indicate that China’s substantial investments in the electric car industry have further solidified their lead, making competition for US and EU manufacturers increasingly difficult.
Northvolt, despite being Europe’s most promising battery maker, faces challenges as the market is flooded with cheaper Chinese LFP batteries.
While the European Union has increased tariffs on imported Chinese electric cars, it has not extended similar protection to battery manufacturers. Moreover, attractive subsidies in the US and Canada are luring companies like Norway’s Freyr Battery overseas.
EU Subsidies Fall Short
The European Commission and the UK have approved less than €7 billion in state aid for battery manufacturing, a mere fraction of the estimated $140 billion needed to achieve the 2030 target of 1.4 TWh of battery capacity.
Meanwhile, the US is expected to provide $160 billion in tax credits for solar and battery cells by 2029, and Canada has committed $25 billion in battery incentives. This disparity in support further disadvantages European companies.
Developing a self-sufficient battery supply chain in Europe poses a significant challenge. China not only dominates battery manufacturing but also controls key aspects of the supply chain, including mineral refining and component production.
The focus on cell manufacturing over upstream industries like mining and refining leaves Europe vulnerable and dependent on external sources.
The Global Battery Glut
The global lithium-ion battery capacity already exceeds demand, with China’s manufacturing capacity expected to significantly surpass domestic needs by 2025. This oversupply is likely to lead to aggressive price cuts, similar to what’s happening in the electric car market. While lower prices might benefit consumers, the reliance on Chinese imports could severely impact local economies dependent on the auto industry.
The future of the electric car market remains uncertain as a potential oversupply of cars and batteries looms.
While some suggest focusing on Europe’s strengths in complex solutions, others warn of the potential consequences of ceding battery production to China. With China’s dominance in the industry, the road ahead for the EV revolution in Europe is fraught with challenges and uncertainties.