In EV batteries, Europe plays catch-up with Asia

HAMBURG, Germany — Haunted by emission scandals and looming bans for diesel cars in German cities, Germany’s automakers have been losing their rock-solid confidence in the future of combustion engines. But as they begin to shift toward electric cars, they are finding themselves completely reliant on Asian suppliers for lithium-ion batteries.

No German automaker or component supplier produces battery cells for electric vehicles, and none has concrete plans for doing so given the massive investment that creating homegrown production would entail.

Instead, the strategy is to persuade Asian cell-makers to set up factories in Europe. China’s Contemporary Amperex Technology Ltd., or CATL, is building a 240 million euro ($270 million) battery factory near Erfurt, eastern Germany, backed by an initial order worth 4 billion euros from BMW — including 1.5 billion euros’ worth that will be produced in Erfurt.

In May, CATL won an order of an undisclosed size from Daimler, which procures battery cells from South Korea’s SK Innovation and LG Chem. LG Chem already has a Europe-based production site in Poland, while Samsung SDI has a plant in Hungary. SK Innovation broke ground on a Hungary plant in March.

Volkswagen is widely expected to announce an agreement in November with SK Innovation to build two plants in Europe, one of them in Germany.

But regardless of whether the cells are shipped from Asia or produced by Asian players locally, this reliance is not a perfect solution. The potential downside was illustrated by LG Chem’s sudden 10% price hike in October, a move that irritated Audi, its customer, according to German media reports.

“On the one hand, we should get as many Asian cell manufacturers as possible to produce here in Europe, as it is beneficial for the value and supply chain in Germany,” said Martin Winter, a professor for electrochemical energy technology at the University of Muenster. “On the other hand, German automakers should strive to gain the capability to manufacture cells themselves, because otherwise it is not too far-fetched to say that the cell-maker of today, like Samsung or CATL, is the automaker of tomorrow.”

Winter said this threat to German automakers’ future competitiveness is already illustrated by Asian players’ moves to shift from manufacturing battery cells to producing the chemical materials used in the cells.

Given that the auto industry is by far the most important component of the German manufacturing sector, it is not surprising that the issue has alarmed policymakers in Berlin.

On Nov. 13, the German government announced that it would free up 1 billion euros to support two or three consortia for Europe-based cell production to reduce the industry’s dependence on Asian suppliers. It did not identify the potential consortium members, however.

This follows the European Commission’s move in October 2017 to launch the European Battery Alliance, which aims to secure access to the raw materials for batteries and support a fully competitive battery cell manufacturing industry in Europe.

One of the members of the European Battery Alliance, Sweden’s Northvolt, is building a plant in Sweden, with backing from Siemens, to be completed in 2023.

In the short term, such moves toward self-reliance will not pose a huge risk to Asian cell-makers investing heavily on European soil, according to Richard Kim, principal automotive analyst, supply chain and technology, at IHS Markit.

“The Europeans cannot deliver the right technology for electrified passenger cars at the right price, so if they would like to set up their own production, they would still be sourcing the core technologies from the Asian companies,” Kim said.

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