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This story is part of the special report In Search of Sovereignty, on Europe’s effort to support domestic technology.
Europe has a master plan to build a world-class battery industry, almost from scratch: Spend big, and spend now. There’s just one problem: The competition is already streets ahead.
The European Commission, supported by a cluster of countries, has spent more than three years working up a strategy to jumpstart projects across the battery value chain — everything from mining raw materials needed in battery packs and cell production itself to the recycling of used products.
The move — under the umbrella of the European Battery Alliance, a platform for coordination and investment — is pitched as vital to stave off dependence on Asian suppliers and to pull off an industry-defining switch to electric mobility by European automakers as countries pull away from polluting diesel and petrol technology.
“Our goal is to achieve a world market share of 30 percent,” Germany’s Economy Minister Peter Altmaier, one of the architects of the battery push, told POLITICO of the plans to produce battery cells in Europe. Currently, Europe has less than 5 percent global market share.
“We will achieve this goal in stages,” he added. “But I expect tens of thousands of jobs to have been created in Europe by the end of the decade.”
Step one came late last year when seven countries led by France and Germany secured approval from Brussels to splash out €3.2 billion in state aid to build out Europe’s stake in a battery technology market estimated to be worth an annual €250 billion by 2025.
At present, Chinese companies dominate the market. Along with South Korean and Japanese firms, they make up around 90 percent of global cell production.
Tech sovereignty
The investment splurge in Europe is the most concrete manifestation of the EU’s desire to foster technological champions and wean itself off dependency on foreign powerhouses.
The aim is to secure so-called technology sovereignty, or greater independence from foreign vendors on everything from cloud computing to autonomous vehicles. It also coincides with a push from Berlin, Paris and other European capitals, to push back on China’s growing economic and strategic clout.
“This is too strategic an industry to rely just on China,” said Diego Pavia, head of EIT InnoEnergy, a group that helps coordinate the European Battery Alliance. “What we’re doing is not just Europe for Europe. It’s Europe for the world.”
A second batch of state aid applications — billed as even bigger than the first — is being prepared to further ramp up Europe’s battery plan.
But money doesn’t guarantee a win.
“Asia, to a large extent, has dominated the industry for the last 20 years,” said Andrew McDowell, a vice president at the European Investment Bank (EIB). “The European automotive industry realized they didn’t have the technological leadership in this area, and if they didn’t do something about that, most of the value that they produced would be built elsewhere.”
McDowell said the EIB expects to set aside at least €1 billion a year in loans for battery projects within the 27-country bloc over the next four years, alongside the injection of public funds from the Commission and national capitals.
But while Europe tries to compete, Asian companies are challenging EU ambitions on its own turf.
In Arnstadt, for instance, a small town in central Germany, Chinese battery-maker CATL has almost completed its €1.8 billion investment in a plant to supply Volvo and BMW with battery cells, while LG Chem, the South Korean industrial giant, secured almost €500 million from the EIB to expand its Polish plant, creating up to 1,800 jobs at a facility it pitches as a “mecca” for battery production not far from German car plants.
Just outside Berlin, Tesla — an American pioneer of electric cars — is accelerating plans for its own new, so-called gigafactory plant, which it wants to have ready by July 2021.
“The outcome of this globally competitive battle is far from known,” said McDowell.
Counterstrike
Europe’s early flagship cell-production project is being developed by Northvolt, a Swedish company founded by two former Tesla executives. It’s in the final stages of securing €1.5 billion of investment, including €350 million from the EIB, to build Europe’s largest battery factory.
The company has another facility in the works through a joint venture with Volkswagen, although that will satisfy only a fraction of the carmaker’s demand for batteries — the rest of which will be sourced through deals with LG Chem, Samsung, SKI and CATL.
Volkswagen isn’t applying for state aid under the European Battery Alliance to get its projects off the ground, an official told POLITICO.
The success of the EU’s strategy will also come down, in part, to a remote industrial site in northern Finland at the beginning of the supply chain. Nestled alongside lines of evergreen trees deep in Northern Finland, Hannu Hautala, the boss of Keliber, wants to open one of Europe’s only lithium mines — a crucial raw material for batteries that European manufacturers currently import.
It remains to be seen whether his bet will pay off.
The Finn said his project is still in the planning stages, but he expects to start construction by 2022 and begin mining two years later. His company has received several million euros of government support and is a quarter owned by a state-backed company, though the majority of the €30 million in financing has so far come from private investors.
“The dependency on foreign firms that we’ve seen in other critical industries is not sustainable,” he said, adding that his mine has faced fewer environmental concerns than other mining projects in Europe because it is built on an existing industrial site. “For Europe’s battery manufacturers, Keliber could offer an alternative.”
Still, the Finnish lithium mine is still years from production, and it must raise almost €400 million in additional funding by 2022. Environmental campaigners have also balked at reigniting the mining industry, including proposed lithium mines in both Spain and Portugal, at a time when Brussels is promoting its Green Deal sustainability agenda.
While these EU projects take years to get off the ground, carmakers are already sealing long-term supply deals with foreign companies and planning for potentially game-changing advances in battery technology.
Germany’s Daimler and Volkswagen, for example, have both recently invested in Chinese battery-makers because of the country’s skyrocketing demand for electric vehicles and continued dominance in the global battery market.
Industry analysts also warn that higher production costs in Europe could make local manufacturing more expensive compared with Asian rivals — a price difference that would inevitably be passed on to consumers. Chinese automakers are mulling whether to enter the European market with their own e-cars aimed at competing on price with European companies, said Matthias Schmidt, a Berlin-based analyst who tracks the electric car market.
Commissioner for batteries
In Maroš Šefčovič, the Commission has a one-man cheerleading squad for Europe’s battery industry. The Slovak politician and Commission vice president has spent years corralling countries and industry into following through with a concrete plan.
Šefčovič, whose decade-long tenure at the Commission includes briefs overseeing everything from education to energy, has described the battery push as the “right recipe for our 21st-century industrial policy.” He says he decided on the need to go big on batteries when, in 2017, he noticed that a new generation of electric vehicles popping up in Brussels and elsewhere were coming from abroad.
“I saw that if you were taking the plane, more and more often, you were driven by the electric bus. But the bus was not from Europe, it was from China,” the Commission’s vice president told POLITICO. “If you take a taxi, very often, you see it’s a Chinese vehicle.”
In Šefčovič’s mind, Europe will not outmuscle Asian competitors solely on price. It needs to build a “value chain” based on regulations it can push as global standards.
For him, it’s not just about the cash, but about leveraging the EU’s role as a regulator to set global rules before other countries beat the region to the punch. He says every euro that European governments spend on industrial projects will be recouped, but in October, the Commission will propose new environmental standards for batteries — an effort to outgreen China and offer local producers a way to differentiate their production from Asian competitors.
“We will never produce the cheapest batteries in Europe,” said Altmaier in Berlin. “We can produce the best, most efficient and most sustainable batteries.”
The new EU rules will include sustainability guidelines, regarding the responsible sourcing of raw materials, a low carbon footprint and reduced waste during production. It will also apply to Chinese suppliers to EU automakers, Šefčovič said. He wants to use Germany’s six-month EU presidency to get the proposals passed quickly into law.
“I believe that we would pull and push the world in this direction,” he said.
Proof in the pudding
Other challenges also await what Šefčovič calls an “Airbus for batteries,” a reference to the pan-European airplane manufacturer.
Foreign governments have so far kept quiet about Europe’s battery push — mostly because the Continent’s companies, collectively, currently hold such a small market share. But that may change once companies from Spain to Sweden start producing raw materials, complete battery cells and other sought-after products.
While Brussels extols the virtues of open competition, it’s subsidizing its own industry and plans legislation that could put barriers to entry for currently dominant, foreign suppliers.
Altmaier, the German minister, rejected the assertion that the battery alliance will trigger new trade discord, and said all were welcome as long as they didn’t use Europe as an “extended workbench.”
“We support companies that are prepared to invest more in batteries in the European Union, even if they are Japanese, Korean, Chinese or American companies,” he said.
“Tesla has decided to build a large plant in Brandenburg [the region surrounding Berlin] to supply the European market,” he added. “If Tesla meets all criteria, it will have the opportunity to benefit from the subsidies provided, just like all other EU companies.”
Others, though, have questioned the Commission funding of a series of local projects, mostly directed toward larger countries like France, Germany and Poland, while also opening a state-aid investigation into Hungary when it tried to give €108 million in public support for Samsung to build a battery plant just outside Budapest. A Commission spokesman declined to comment on that investigation.
Šefčovič dismissed accusations that Europe’s plan would lead to trade wars similar to the long-standing dispute between Airbus and Boeing. It’s only fair, he said, for the bloc — just like other countries — to push its claim in an industry likely to be crucial for everything from electric cars to storing renewable energy.
“That’s our strategic goal,” he said. “We are just pursuing it as any other major economy.”
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Matthew Karnitschnig and Jakob Hanke Vela contributed reporting.
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