Asian EV bat­tery makers may over­power Europe

Con­ti­nent pre­pares initiative to avoid de­pen­dence on com­peti­tors

Global Times - Weekend - - FRONT PAGE -

Chi­nese elec­tric ve­hi­cle gi­ant BYD is look­ing at launch­ing bat­tery pro­duc­tion in Europe, join­ing Asian ri­vals aim­ing to cash in on a green car rev­o­lu­tion and threat­en­ing at­tempts by Brus­sels to nur­ture a home­grown in­dus­try.

Keen to cap­ture a European car bat­tery value chain that will be worth an es­ti­mated 250 bil­lion eu­ros ($290 bil­lion) by 2025, the European Com­mis­sion launched an al­liance of lo­cal com­pa­nies last year aim­ing to build 10 to 20 huge bat­tery fac­to­ries.

But only Swe­den’s North volt has plans for large lithium-ion bat­tery fac­to­ries in Europe so far, and some lead­ing European car­mak­ers have al­ready struck deals with Asian sup­pli­ers that are set­ting up in Hun­gary and Poland.

“We are con­sid­er­ing cell pro­duc­tion out­side of China and that in­cludes Europe,” Ju­lia Chen, global sales di­rec­tor at BYD Bat­ter­ies, told Reuters, speak­ing about the pro­duc­tion of ve­hi­cle and home stor­age bat­ter­ies.

BYD, which also makes elec­tric buses, cars and so­lar panels, said it was not clear where in Europe a bat­tery site might be. “It would be pos­si­ble wher­ever there’s a mar­ket,” she said.

The com­pany, which is backed by War­ren Buf­fett’s Berk­shire Hath­away, joins South Korea’s SK In­no­va­tion, Ja­pan’s GS Yuasa Corp and China’s Con­tem­po­rary Am­perex Tech­nol­ogy (CATL) in look­ing to lo­cate bat­tery plants in Europe.

South Korea’s LG Chem and Sam­sung SDI have European fac­to­ries due to open soon while China’s GSR Cap­i­tal al­ready pro­duces bat­tery cells at a UK plant it bought from Nis­san.

While Asian elec­tric ve­hi­cle (EV) cell bat­tery fac­to­ries in Europe would bring jobs, Brus­sels is con­cerned com­pa­nies in the bloc are miss­ing out on a growth in­dus­try and risk be­com­ing de­pen­dent on for­eign tech­nol­ogy.

“We have to move fast be­cause here we are in a global race. We need to pre­vent tech­no­log­i­cal de­pen­dence on com­peti­tors,” European Com­mis­sion Vice Pres­i­dent Maros Se­f­covic said at the launch of the European Bat­tery Alli- ance’s ac­tion plan in May.

But some in­vestors say they are wary of back­ing European EV bat­tery sup­pli­ers af­ter see­ing lo­cal so­lar panel pro­duc­ers founder in the face of cheap Chi­nese im­ports over the past decade.

European bat­tery com­pa­nies would need bil­lions in EU sup­port to ri­val Asian com­pa­nies that have re­ceived sim­i­lar state sub­si­dies, and Brus­sels may be bet­ter off pro­mot­ing next-gen­er­a­tion solid-state EV bat­ter­ies in­stead, in­vestors say.

“I don’t be­lieve any­one in Europe can be com­pet­i­tive with the Asians,” said Ger­ard Reid, founder of Alexa Cap­i­tal, which ad­vises com­pa­nies in the en­ergy, tech­nol­ogy and power in­fra­struc­ture sec­tors.

‘Green’ bat­ter­ies

Elec­tric and hy­brid ve­hi­cles are ex­pected to ac­count for 30 per­cent of the global auto mar­ket by 2030, ac­cord­ing to metal con­sul­tants CRU, up from 4 per­cent of the 86 mil­lion ve­hi­cles sold last year.

Global au­tomak­ers plan to in­vest at least $90 bil­lion in elec­tric cars and bat­ter­ies, the most ex­pen­sive com­po­nent in the ve­hi­cles, to fi­nance hun­dreds of new mod­els over the next five years.

Car­mak­ers in Europe have been im­port­ing bat­ter­ies from Asia, but as pro­duc­tion ac­cel­er­ates that strat­egy will be­come less vi­able.

Set­ting up pro­duc­tion in Europe would cut ship­ping costs by one-quar­ter, said con­sul­tancy P3 Group.

But some car­mak­ers are not wait­ing for a European in­dus­try, in­stead sign­ing con­tracts with Asian com­pa­nies com­ing into the re­gion.

Ger­man’s BMW said it was not in­volved in the European al­liance while Europe’s big­gest au­tomaker, Volk­swa­gen, said it plans to get bat­ter­ies from LG Chem’s Pol­ish fac­tory. Mercedes maker Daim­ler has awarded a con­tract to CATL.

The European Com­mis­sion’s plan calls for 110 mil­lion eu­ros in bat­teryre­lated re­search, help for projects from a 2.7 bil­lion euro EU in­no­va­tion fund and the devel­op­ment of an EU “green bat­tery” trademark.

Sup­port­ers of the initiative ar­gue Europe can carve out a niche by sell­ing green bat­ter­ies pro­duced with re­new­able en­ergy and eth­i­cally sourced raw ma­te­ri­als.

Fi­nanc­ing round

North­volt, which has held talks with European au­tomak­ers, aims to launch its $5 bil­lion gi­gafac­tory in late 2020 and pro­duce 32 gi­gawatt hours of bat­tery ca­pac­ity each year by 2023.

But in­vestors have been cau­tious about pour­ing money into new European bat­tery ven­tures.

North­volt’s first fi­nanc­ing round, in­tended to raise 80 mil­lion eu­ros to 100 mil­lion eu­ros to help set up a test fac­tory, took slightly longer than ex­pected, a spokesman said.

In the end, the bulk of the fi­nanc­ing was pro­vided by the Swedish En­ergy Agency and the European In­vest­ment Bank, which pro­vided a loan of up to 52.5 mil­lion eu­ros.

Much of the profit from the bat­tery value chain is gen­er­ated by pro­duc­ers of raw ma­te­ri­als, such as cobalt and lithium, and those who as­sem­ble cells into com­plex sys­tems, ex­perts said.

North­volt and Ter­raE will prob­a­bly need about $2 bil­lion each in gov­ern­ment fund­ing to build their gi­gafac­to­ries, given the state sup­port pro­vided for sim­i­lar projects in Asia and the US, said Asad Farid, an as­so­ciate di­rec­tor at pri­vate bank Beren­berg who spe­cial­izes in bat­tery tech­nol­ogy.

Four months af­ter the European al­liance launch, the world’s big­gest au­to­mo­tive sup­plier, Ger­many’s Robert Bosch, aban­doned plans to make bat­tery cells, say­ing it was too risky.

Solid-state so­lu­tion?

In­vestors are wary be­cause of their ex­pe­ri­ence with so­lar panel makers as well as rapid ad­vances in tech­nol­ogy that are slash­ing the price of bat­tery packs, which con­sul­tants Arthur D puts at $190 to $250 per kilo­watt hour.

“In bat­tery man­u­fac­tur­ing... it’s very much about scale. So es­tab­lished pro­duc­ers in South Korea, China and Ja­pan have clear ad­van­tages over new en­trants,” said Si­mon Web­ber, lead port­fo­lio man­ager on the global and in­ter­na­tional eq­ui­ties team at Schroders.

Tim Crock­ford, who man­ages Her­mes In­vest­ment Man­age­ment’s Im­pact Op­por­tu­ni­ties Fund, said he was more in­ter­ested in European com­pa­nies that are re­search­ing cath­ode tech­nol­ogy, ar­eas with ma­jor bar­ri­ers to en­try in terms of R&D.

“The at­trac­tion of the in­dus­try de­creases as you move fur­ther down the value chain. Things like bat­tery man­u­fac­tur­ers and the bat­tery pack as­sem­blers ... it’s much more frag­mented mar­ket with lower bar­ri­ers to en­try,” said Crock­ford.

While Her­mes has avoided com­pa­nies mass-pro­duc­ing EV cell bat­ter­ies, it has taken stakes in a lithium pro­ducer as well as a com­pany that makes ma­te­ri­als for bat­tery cath­odes, he said.

The lithium-ion bat­ter­ies used now are also likely to be over­taken in a mat­ter of years by so-called solid-state tech­nol­ogy that is ex­pected to pro­duce even cheaper bat­ter­ies with higher en­ergy den­sity.

“The devel­op­ment cy­cle and the speed of tech­nol­ogy progress in bat­ter­ies is so huge at the mo­ment, there’s an op­por­tu­nity for new and ad­di­tional players to en­ter,” said Timo Moeller, head of the McKin­sey Cen­ter for Fu­ture Mo­bil­ity in Cologne.

De­vel­op­ers in Europe be­lieve that gives the re­gion a chance to catch up.

“Ev­ery­body is de­vel­op­ing solid-state bat­ter­ies so the gap [with Asia] will be nar­rower and nar­rower as we go along,” said Diego Pavia, CEO of In­noEn­ergy, a sus­tain­able en­ergy com­pany that has in­vested in North­volt.

Photo: VCG

Em­ploy­ees work on the bat­ter­ies of an elec­tric bus at the BYD Coach and Bus fac­tory in Lancaster, Cal­i­for­nia, US, on Oc­to­ber 5, 2017.

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