The EU is lagging behind in battery production. China and the USA in particular are leading the battery race. They own the raw materials and rely heavily on the promotion of the battery industry.
Geopolitical and economic factors could slow the expansion of battery production capacity in the EU.
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Despite efforts to boost the battery industry in Europe, the European Union (EU) risks falling behind in the race to become a leader in battery manufacturing, according to a report by the European Court of Auditors. According to the report, the European battery industry is unable to keep pace with global competition – especially with China, which accounts for 76 % of global production capacity. Batteries are of great strategic importance for the EU against the backdrop of the ban on internal combustion vehicles by 2035, the auditors said.
If it is not possible to ramp up production capacity for batteries in the EU, two scenarios loom, according to the auditors: Either the EU will miss its climate targets, as vehicles with combustion engines could only be banned after 2035, or electric vehicles and/or batteries will have to be imported from third countries.
Shortages Despite Potential
In principle, however, the auditors do not pass a bad judgment on the EU's industrial policy for batteries. For example, the main points of the EU's strategic action plan to support the sector, to be published in 2018, have largely been implemented. These related to strategic leadership, legislation and funding, they said. Also, battery production capacity in the EU has the potential to grow from 44 GWh in 2020 to 1,200 GWh in 2030. However, the development could be jeopardized by geopolitical and economic factors.
"The EU must not end up in the same dependent position with batteries as it did with natural gas; its economic sovereignty is at stake," said Annemie Turtelboom, the ECA member who led the audit. "By planning to end the sale of new petrol and diesel cars by 2035, the EU is betting heavily on batteries. But it might have the weaker hand in terms of access to raw materials, attractiveness to investors and costs." These are precisely the three factors that are said to be holding Europe back.
Rising Costs, Fierce Competition and Difficult Access to Raw Materials
Tough Global Competition: Battery manufacturers could migrate from the EU to other regions – especially to the USA, where they would be offered strong incentives. For example, the Inflation Reduction Act (IRA) in the US provides high tax incentives for electric cars, batteries and renewable energy. Unlike the EU, the U.S. directly subsidizes mineral extraction and battery production, the auditors said. This also applies to the purchase of electric vehicles manufactured domestically with American components, they said.
Difficult Access to Raw Materials: In addition, the EU is highly dependent on imports of raw materials - mainly from a few countries with which it has no trade agreements. For example, 87 % of its crude lithium imports came from Australia, 80 % of its manganese imports came from South Africa and Gabon, 68 % of its imports of crude cobalt came from the Democratic Republic of Congo, and 40 % of its imports of natural crude graphite came from China. While Europe has some deposits, the auditors said, they will take at least 12 to 16 years to develop, so growing demand cannot be met quickly. However, current supply contracts generally only secure raw material supplies for production for the upcoming two or three years.
Rising Costs: Furthermore, the competitiveness of battery production in the EU could be jeopardized by rising raw material and energy prices. At the end of 2020, the cost of a battery pack (200 euros per kWh) was more than twice as high as planned. In the last two years alone, the price of nickel had risen by more than 70 % and that of lithium by 870 %.
EU Critical Raw Materials Act and EU Battery Regulation
In order to improve the supply of important but classified critical raw materials, the European Commission proposed a Critical Raw Materials Act (CRMA) in March this year. Among other things, the proposed regulation is intended to diversify EU imports of strategic raw materials in order to reduce dependencies, as Peter Kurth, President of the German Association of Waste Management, Water and Environmental Services (BDE), also explains in the German interview "Rohstoffsicherheit schafft die Basis für Nachhaltigkeit" from the German magazine Nachhaltige Industrie 2-2023. In addition, on June 14, the EU Parliament passed the EU Battery Regulation, which is intended to partially counteract the lack of domestic critical raw materials in Europe. This will impose new regulations on the design, manufacture and recycling of all batteries sold in the EU.
The law on critical raw materials is welcomed by the European Court of Auditors. However, the auditors also criticize the EU Commission. For example, it does not have an overall view of public support for industry. This hinders a well-coordinated approach. In addition, there is a lack of clear targets for battery production. The EU's current strategy does not take into account whether the local battery industry is capable of meeting battery demand.