What happened?

Europe is struggling to develop its own production capacity for lithium-ion batteries for electric vehicles. Currently, 88% of production takes place in Asia (Japan, Korea and China), while less than 5% is produced on the Old Continent. This situation is increasingly problematic for European and American automakers alike, as EU regulations are pushing them to ramp up EV production while batteries are in short supply. Moreover, a significant part of the automotive value chain is shifting from (domestically produced) combustion engines to foreign battery packs and this not only poses a threat to automakers’ profitability, it also hurts European jobs. However, it is questionable whether any European manufacturer will ever be able to compete with the likes of Panasonic, LG Chem and Samsung SDI, who are currently dominant in terms of capabilities, patents and scale.

What does this mean?

Developments in li-ion technology are impressive. Costs have dropped from $1000 per kWh storage capacity to about $200 in 2017 (~$120/kWh is expected in 2020), while the energy density is up from 60Wh/liter in 2008 to 295Wh/liter in 2015. This progress is the result of (incremental) improvements in battery chemistry, production methods and, most of all, the upscaling of processes. This rapid progress implies that batteries are not a commodity and any new producer would have to catch up in terms of technology and scale. Also, it’s highly unlikely that any radical breakthroughs in battery technology would allow new (European) entrants to enter this market by leapfrogging existing technology.

What’s next?

Europe needs multiple “gigafactories” to satisfy expected demand, but efforts to realize this still rely heavily on Asian manufacturers; to set up factories or as suppliers of critical components. Purely European initiatives are scarce and yet limited in projected scale, but these could bring distinct advantages as they tend to produce more components locally, pollute less and have a strong focus on recycling raw materials or second-life applications for discarded automotive batteries. Still, it remains unclear whether Europe is really able to muster the (financial and regulatory) strength needed to bridge the gap with Asia. If not, the EU risks choking its automotive industry under the pressure of its very own emissions regulations.