Zhang Dongfang: Chinese battery manufacturers investing in factories in Europe is not just a choice of “no choice”, they also usher in their own opportunities in the EU’s green policy.
Looking at the global electric vehicle battery market, the development momentum of Chinese battery companies is fierce. According to SNE Research, in the global power battery market in 2022, the CATL and BYD are developing the fastest, of which the CATL is the champion and far ahead. Last year, the global battery production capacity was 517.9GWh, up 71.8% year-on-year, while the installed capacity of a company in CATL reached 194.6GWh, with a market share of 37%, and its production capacity increased by 92.5% year-on-year. BYD, also from China, and South Korean battery maker LG New Energy are vying for second place.
According to a recent study of Chinese direct investment in Europe by Rhodium Group and MERICS, from 2016 to 2022, China’s announced FDI in the global EV value chain quadrupled from €605 million to €24 billion. In the past five years, deals in the electric vehicle sector accounted for 19% of all ODI, and in 2022, the share will be 58%. The study pointed out that China’s expansion in the field of electric vehicles has been developed from the original focus on mining, to directly build battery factories in important markets.
Looking at Europe, the world’s second largest electric vehicle market that cannot be ignored, the prosperity of the electric vehicle market means that the demand for power batteries is strong, and China’s direct investment in Europe is transferring to the electric vehicle value chain, especially in the battery field. According to Rhodium research, Chinese investment in battery factories in Europe has become the main driver of Chinese direct investment in Europe. Since 2018, the announced investment of Chinese battery companies in Europe has reached 17.5 billion US dollars, and it is expected that by 2030, the capacity of Chinese battery manufacturers in Europe will account for about 20% of the total battery capacity in Europe. So far, most of China’s investment in batteries has focused on battery modules and packs, while Chinese companies including Zhongwei and NJie are also looking for opportunities in the upstream and downstream sectors.
Rhodium Research Analysis, Europe, the second largest EV market after China, has a relatively modern charging infrastructure, generous government subsidies for car purchases, and an interest in decarbonizing the road transport sector. Moreover, unlike Japan and South Korea, where the auto industry is developed, there are relatively few local large battery companies in Europe, and Europe is still open to Chinese investment, which brings huge opportunities to Chinese battery companies, including CATL and Honeycomb Energy.
At present, the European Union is passing legislation to promote the return of green technology production to Europe, but the United States’ Inflation Reduction Act subsidies for batteries and high energy prices in Europe have brought great uncertainty to the “Made in Europe” blueprint, which may lead to two opposite investment trends: investment from Europe to the United States, and Chinese investment to Europe. The Rhodium study said that because of the Lower Inflation Act and energy prices in Europe, companies including Tesla and Northvolt have slowed down their battery plans in Europe, choosing to consider the United States. According to Bloomberg NEF data, in lithium-ion battery investment, Europe’s share of the global total investment dropped from 41% in 2021 to 2% in 2022. US efforts to exclude Chinese battery companies have made it more difficult for Chinese companies, and Catl has slowed its plans to locate factories in Carolina, Kentucky and Mexico. In this case, the European continent is becoming more attractive to Chinese battery manufacturers.
Chinese battery manufacturers investing in factories in Europe is not just a “no choice” choice, they also usher in their own opportunities in the EU’s green policy direction. In March this year, the European Commission published the draft of the Net Zero Industry Law, and battery technology is on the list of eight strategic net zero technologies. The draft sets a target for the EU to approach or meet at least 40 per cent of annual demand in strategic net-zero technologies by 2030 – green technologies, including batteries, with some level of European manufacturing.
In January, green mobility agency T&G evaluated about 50 planned battery gigafactories (only those with a rated capacity of 2 GWh or more) and predicted that 32 of them were likely to go ahead. T&G believes that among all announced construction projects, battery production capacity will reach 286 GWh in 2025, 616 GWh in 2027 and 1,395 GWh in 2030. Among them, the companies with the largest production capacity include CATL, Volkswagen, Freyr, ACC and Northvolt. In 2030, about 58% of the production of European-made batteries will come from European companies and 22% from Chinese companies. T&G reports that in 2022, 50 percent of lithium-ion batteries used in electric vehicles and energy storage in the EU will already be made in Europe. If the right incentives are put in place and the announced projects come online, by 2027, 100% of the battery cells can be made in Europe, and 67% of the positive active material can be achieved.
T&G also conducted a risk assessment of 1.8 TWh capacity plans in Europe up to 2030, based on data up to February 2023, and found that 16%, or 285 GWh, is at high risk, and 52% is at medium risk, meaning that if no action is taken, by 2030, the risk will increase. In Europe, 68 per cent of capacity, or 1.2TWh, faces uncertainty of being delayed, scaled down or not realised. The evaluation criteria include the confirmed capital, the confirmed location of the plant, the construction and approval status, the investment from the European car company or the support from the EU institutions, the plan that has been finalized in the United States, and the cooperation with the US car company six criteria. China’s dominance of the electric vehicle supply chain and the US Inflation Reduction Act are game-changing, the report said. In theory, Europe and the United States can work together in the battery supply chain, but in practice, the supply of professionals, corporate capital, and raw materials is in short supply, which means that the global competition in battery production is a zero-sum game.
In April last year, the company’s plant in Thuringia, Germany, received a production license to produce 8 GWh of cells per year. In January, the company opened the plant, which became its first production facility outside China. Its initial capacity is 14 GWh, which means 30 million cells per year. The company will invest 1.8 billion euros in the plant, the first mass production of batteries in Western Europe, and the batteries will be supplied to European automakers including BMW, the company’s European president said. BMW has ordered 7.3 billion euros worth of batteries from the CATL until 2031. The CATL is also expected to obtain a production license of up to 24 GWh.
In T&G’s risk assessment, 32% of battery capacity in Europe is at low risk by 2030, including 8 GWh of capacity in Germany during the CATL. It can be understood that for the European mainland, this 8 GWh is not only 8 GWh capacity, but also 8 GWh certainty. Regardless of other political factors, under the European Union’s planned battery manufacturing blueprint and the United States’ local battery incentive policy, Chinese battery companies have ushered in opportunities in Europe.
Source: FT Chinese column