Europe’s EV supply chain revs up

With demand for electric vehicles (EVs) solidly on the upswing in Europe, automobile manufacturers and their suppliers are turning their attention to developing a domestic supply chain for batteries and their components.

"There is not much of a battery supply chain in Europe today, but it is likely to change quite dramatically within the next five to 10 years," Lukasz Bednarksi, IHS Markit principal research analyst, lithium and battery materials, said. "Basically, every month I see announcements [of new projects] across every stage of the supply chain."

December and January have seen announcements about planned new battery assembly factories or expansions in France, Germany, Poland, the UK, and elsewhere. This month, the alliance of Renault, Mitsubishi, and Nissan is expected to increase its budget by €20 billion ($23 billion) over the next five years in order to launch five EV platforms; and Toyota said it's redirecting $35 billion over the next five years to EVs. Meanwhile, Swedish battery manufacturer Northvolt became the first EU company with a lithium-ion battery plant in the EU when it began production in December 2021.

These types of activities were exactly what the European Commission (EC) hoped to see when it launched the European Battery Alliance (EBA) in October 2017 to bring together stakeholders and identify priorities for the battery supply chain.

"Virtually nothing was happening in 2017 in cell manufacturing. It was a threat to direct and indirect jobs in Europe's automobile industry," Ilka von Dalwigk, manager for smart grid and storage for EIT InnoEnergy, told Net-Zero Business Daily. (EIT InnoEnergy provides financial and technical support to EBA.)

Today, EBA has identified nearly 50 announcements for cell manufacturing in Europe, ranging from plants fully commissioned and some under construction, to announcements. "It's a tremendous development," she said.

By one estimate, batteries gathered €120 billion in public and private investment in 2019 and 2020 in Europe, or about 3.5 times more than was invested in China during that time, according to EU Commissioner for the Internal Market Thierry Breton. Speaking on 13 January, he said that 70 "major" battery projects have been announced and or are under construction in Europe, including more than 20 gigafactories, and that training programs are underway for the estimated 800,000 people who will work in those plants.

The EC stepped up in January 2021 with the European Battery Innovation program. The €2.9-billion ($3.3 billion) program involves Austria, Belgium, Croatia, Finland, France, Germany, Greece, Italy, Poland, Slovakia, Spain, and Sweden, and it's expected to result in private companies investing up to €9 billion ($10.2 billion).

More than 40 individual projects are expected to be completed in the next few years, from raw and advanced materials to battery cells and battery systems to recycling.

Growth and opportunity

IHS Markit projects Europe will be the world's fastest-growing EV market this decade, which makes solving the supply chain puzzle especially important.

"We forecast that EV production in Europe will grow from 20.5% of global EV output in 2021 to 31% in 2030. … In 2030, we forecast that Greater China will be home to production of 14.9 million EVs, Europe 11.6 million, and North America 5.8 million units," IHS Markit Principal Analyst Stephanie Brinley wrote in a January report.

Europe-based automakers have made it clear that they see EVs as the future. Volkswagen, the world's largest automaker by volume, announced last year a planned $100-billion investment in electric cars and trucks. IHS Markit forecasts that VW will be the world's largest EV producer in 2030, making about 5.4 million EVs, compared with about 427,000 cars in 2021. Also, IHS Markit says two-thirds of those vehicles will be manufactured in Europe.

Daimler, with both the luxury Mercedes-Benz brand and its budget Smart brand, manufactured about 113,000 electric cars in 2021, but this will rise to 2.1 million by 2030, according to IHS Markit. "Not unlike Volkswagen, Daimler's EV production has started in Europe and will radiate outward in the coming years," Brinley wrote. "As the company expands its EV offerings and EV production footprint, IHS Markit forecasts that, in 2030, about 50% of its EV production will still be in Europe and about 35% in China, with North America accounting for just under 8%."

Toyota, the world's second-largest automaker, is planning to rapidly scale up its production to 3.5 million units per year by 2030, thanks to a redirection of at least $35 billion to electric mobility through 2026. Brinley says that the automaker will emphasize having a geographically diverse manufacturing base, with a strong presence in Europe: "IHS Markit forecasts that Toyota will see about 28.6% of its EV production in Japan, 27.5% in mainland China, 21% in Europe, and 10.6% in North America; Toyota is also forecast to leverage its South Asian production base and see 11.8% of its global EV production there."

To put demand in battery terms, EBA says that Europe will need annual production capacity of 500 GWh in 2025, and 1,000 GWh (1 TWh) in 2030 to meet the needs for electrifying passenger cars, buses, and heavy-duty vehicles, and the emerging sector of stationary storage. Currently, capacity is less than 50 GWh, according to McKinsey & Co.

Matter of balance and security

Given the anticipated growth in EV sales, having supply chain capability in Europe is a matter of security, balance, and adaptability in a rapidly changing industry.

"For too long there was this idea of outsourcing manufacturing to Asia and just doing R&D in Europe," Bednarksi said. "But when you have industry clusters and factories close by, you see benefits. You can more quickly commercialize a new technology, which is important in this industry."

EBA's von Dalwigk added: "It took automotive manufacturers a while to understand that batteries are an integral part of tomorrow's engine … [that] you can differentiate your car from a competitor's car. So, now we see them getting involved in learning about battery chemistry."

Supply chain disruptions of all types due to the COVID-19 pandemic added another layer of urgency. "The re-industrialization of Europe is not only a question of sovereignty, it is a question of social stability, and from that perspective, the pandemic is an opportunity," Yann Vincent, CEO of Automotive Cells Company (ACC), a startup battery producer in Europe, said during a podcast sponsored by Elite Experts Conferences in January.

Battery assembly

Battery cell production and assembly have been the first sectors where investments are paying off, Bednarski said, with Northvolt's startup of its homegrown plant a signal event. Northvolt has won more than $27 billion of contracts from BMW, Fluence, Scania, Volkswagen, Volvo Cars, and Polestar.

On 16 December, Northvolt announced another major investment, as it's partnering with Galp, a Portuguese energy company, on a joint venture known as Aurora. It will build a lithium conversion plant in Portugal with an initial annual production capacity of up to 35,000 metric tons (mt)/year of battery-grade lithium hydroxide, making it the largest in Europe. "The plant will be able to deliver lithium hydroxide sufficient for 50 GWh of battery production per year (sufficient for approximately 700,000 electric vehicles)," they said.

Northvolt has signed up for 50% of the plant's capacity, and startup could be in late 2025.

Ironically, the growth in this sector is supported by major investments from Chinese and South Korean companies from whom Europe's auto industry is seeking to wean itself.

South Korean conglomerate LG Chem opened a lithium-ion EV battery plant in Poland in 2018, and last year announced a €1.5-billion expansion. The facility in Wroclaw will be able to produce about 65 GWh of batteries when the expansion is completed in the fourth quarter of 2022, up from about 35 GWh today.

China's CATL, the world's biggest EV battery manufacturer, supplies major European automakers, such as Volkswagen, Daimler, and BMW. CATL has been developing battery technology in Germany since 2014 through a partnership with the German government. Industry analysts say it's possible that CATL will be chosen by Volkswagen as a partner in one or more of the six battery gigafactories VW is planning to complete in Europe by 2030.

The reality is that Europe's future needs will be served by both domestic capability and imports. This includes components such as cathodes, anodes, electrolyte, solvents, membranes, and housing for batteries. Those components are being imported from China, Japan, and South Korea today.

Battery startup ACC intends to produce 1 million EV batteries annually by 2030, using European and Asian suppliers. The two ACC factories furthest along are in France and Germany, with startup of the French factory anticipated for 2023 at an initial capacity of 8 GWh, and expandable to 32 GWh. A pilot facility already is operating in France.

"The question is no longer 'will EVs be the future of the automotive industry?', but rather, 'How large will it be?'" ACC says. While annual global sales of EVs will grow about tenfold by 2030, ACC says the need for batteries will accelerate even more rapidly. It says the kWh demand for those cars will be more than 21 times greater, as drivers demand better performance and longer range.

Stellantis, the sixth-largest automaker in the world, and Saft, a battery company started by TotalEnergies, created ACC. In 2020, GM's Opel group and Daimler joined ACC as equal investors.

ACC's factory in Kaiserslautern, Germany, will be built at a Stellantis/Opel auto factory, and it's supported by a grant of €437 million from the German government, as well as EU funding. "Operation should start in 2025 with an initial capacity of 13.4 GWh that will ultimately ramp up to 40 GWh," ACC said in an update on 10 December.

In another recent announcement, Britishvolt said on 24 January it has a deal to supply battery cell packs to Lotus, which is developing an electric sportscar. This will help to fund the first battery gigafactory in the UK, targeted to open in 2023. Eventually, it could supply 300,000 EVs per year, the company said.

Raw materials

Obtaining the raw materials for batteries is a more vexing problem than assembly. European governments and companies have a few choices. They can mine them within the EU's borders; they can import raw materials and then refine them domestically; or they can recycle.

Sourcing battery-grade lithium is possibly the most crucial mineral, though manufacturers also have faced supply challenges with manganese, cobalt, and graphite. EBA and IHS Markit see lithium-based batteries as the leading technology through 2030. Yet Portugal has the only operating lithium mine on the continent, and until the Aurora joint venture gets off the ground, most of Portugal's modest lithium output supplies the ceramics industry.

Manufacturers are well aware of the dilemma. "Extending the new European value chain upstream to include raw materials is of critical importance," Paolo Cerruti, Northvolt co-founder and chief operating officer, said. "This … complement[s] a global sourcing strategy based on high sustainability standards, diversified sources, and reduced exposure to geopolitical risks."

In January, British Lithium began pilot-phase production of what would be domestically sourced lithium carbonate at a pilot plant in Cornwall, as it's seeking to be the first company to produce commercial quantities of lithium from mica. "Our unique pilot plant approach incorporates all processing stages—from quarrying through to high-purity lithium carbonate production. This includes crushing, grinding, and beneficiating the ore, custom-built electric calcination at low temperatures, acid-free leaching, and multiple purification steps that include ion-exchange," it said.

Vulcan Energy Resources, a geothermal engineering company based in Germany, is making progress on a radically different lithium production technology that offers the promise of little or no carbon footprint. Using geothermal energy, Vulcan is seeking to produce lithium hydroxide from brine in the Upper Rhine Valley in Germany, rather than using the traditional methods of hard rock mining or brine deposit extraction.

"This has two advantages: One is the very low carbon footprint, and the other is that it will not be an open mine," von Dalwigk said. "When you are looking at public perception, regulation, permitting—this has a clear advantage for lithium production."

Vulcan could expand its Zero Carbon Lithium™ technology rapidly, as January saw the granting of five new export licenses by Germany and receipt of a new research permit at a geothermal site in Italy.

Solving the public perception puzzle is significant, as evidenced by the 21 January decision by Serbia to revoke Rio Tinto's lithium exploration and mining licenses for a $2.4-billion project. With planned production of 58,000 mt/year of battery-grade lithium carbonate, the Jadar Valley project would have been Europe's biggest lithium mine.

Citizen protests over the environmental impacts of mining killed the project, Serbian officials said. "As far as project Jadar is concerned, this is the end. Rio Tinto gave insufficient information both to the local community and the government," said Serbian Prime Minister Ana Brnabic.

"It's a big blow to the European industry battery industry," von Dalwigk said, noting that not only was the mine going to provide a needed raw material, but it was expected to create a cluster of related businesses, including battery and EV assembly plants. She said that some estimates were that the mine and related businesses would have added 20% to Serbia's GDP.

Meeting future needs

Yet, even while deals are proliferating for supplies of raw materials, components, and batteries, some parties believe that Europe can and should do more to push forward on the EV revolution.

On the one hand, the EU has proposed that by 2035 all new cars must be zero-emissions, effectively giving automakers a giant target. The deadlines are even sooner in non-EU member Norway (2025) and Germany (2030).

However, right now Europe's automakers are meeting their EV needs rather easily, according to think tank Transport and Environment (T&E), which is pushing for tougher interim regulations on the way to 2035.

If the announced battery capacity comes online when it's supposed to, T&E believes that it will cover 90% of the projected new EVs by 2030. "We see a lot of positive signs," Julia Poliscanova, T&E's senior director, vehicles & emobility, told Net-Zero Business Daily. "Even right now, automakers are not struggling to find sufficient battery volumes to meet their EV production."

But just looking at whether the vehicle market can be supplied during its forecast growth misses the bigger picture, she said. The problem, from T&E's perspective, is that Europe's target for EV sales is too low, if the region is to meet its overall emissions reductions goals. It would like to see the EU finalize the EV mandate and move up its timetable or toughen the rule for 2030 that fleet-average new car emissions must be 55% below 2021 levels.

"Automakers can go a lot faster than the current regulations," Poliscanova said. "When we look at what is required today until 2030, the [big required increase] is only post-2030. There was a push in 2020 and 2021, and that's why we are seeing growth in EVs in Europe. But there's no new target in 2022 … and there are only a few tweaks [up] to 2025."

When those requirements were being written in 2017-2018, lawmakers were dealing with an emerging technology, and they accepted the idea that demanding too much of automakers or the supply chain could have negative consequences. But the world has changed. "Who would have believed then that [there would be a requirement] that every new car in Germany in 2030 will have a plug?" she said.

Europe's automakers were able to manufacture nearly 20% of new vehicles with electrification in 2021, and "we are able to do this without any European cell production," she pointed out.

Automakers are on track to reach the targets for fleet emissions for 2025-2029 by 2023. From T&E's perspective, this is a "wasted opportunity" to push further in electrification of transport, she said.

Although COVID-19 created supply chain problems for batteries, it had the effect of increasing EVs' market share in Europe, Poliscanova explained. Because computer chip makers missed their production targets, Europe's automakers could not build as many cars as they anticipated. Thus, they prioritized higher-profit models, such as SUVs, but those cars have above-average emissions. To balance against those SUVs and meet fleet emissions targets, automakers ramped up EV production as well. "We had just over 10 million cars produced in Europe in 2021, about the same as 2020. But the percentage of EVs is way up," she said. "This year we might produce the same or even a higher number of EVs, but the share could be lower if volumes rebound."

Regardless of their recent success, automaker CEOs remain wary of facing higher targets. "We need to remain competitive," said Stellantis CEO Carlos Tavares in an interview with European newspapers in January, as he cited rising costs for making EVs in Europe. "What is clear is that electrification is a technology chosen by politicians, not by industry."

"I think this transition into EVs has certain constraints. I think the plan to get to 50% [EVs] by 2030 is extremely ambitious," said Volkswagen CEO Herbert Diess in an interview with The Verge this month.

Recycling

Whatever market shares that EVs reach, recycling of key materials is expected to be a key part of the supply chain solution. Recycling has many merits, from not having to import metal from Asia or Africa, to avoiding mining or other production activities, to reducing waste streams.

"Interest is growing," von Dalwigk said. "We saw a number of new recycling projects announced in Europe, coming from all parts of value chain, in 2021."

The most common form of recycling today is from the industrial process itself. When batteries are produced, a significant amount of material is unused, sometimes because it's not pure enough or because something goes wrong in the manufacturing steps. Currently, Asian companies in Europe take that material and ship it back to Asia for reprocessing. "So, that is a lot of value flowing out back to Asia, and then we have to pay once more when it's imported in a cathode, for example," she said.

BASF announced in June a plan to keep some of that industrial recycling activity in Europe, as it will build a pilot project in Germany, at the site of its cathode active materials plant. In December, the company said it will invest €4.5 billion by 2030 globally in battery recycling.

Northvolt is doing its part on the side of using recycled materials. It announced in November that it produced its first battery cell with 100% recycled nickel, manganese, and cobalt. Northvolt will break ground in the first quarter of 2022 on a facility to produce recycled metals sufficient for 30 GWh of battery production per year, or half of its total annual cell output. Volvo and Polestar are the two identified first customers.

Recycling batteries that are declining in performance is another opportunity, and it's an area in which EU lawmakers are leaning on the industry. In December 2020, the EC issued a draft proposal for mandatory levels of recycled content in new batteries. That rule has been through a public review process and is now under discussion by the European Parliament. It could be finalized this year and phased in through 2030.

"The idea is to stimulate the recycling industry by setting mandatory amounts, how much recycled content in a newly produced battery," von Dalwigk said.

Industry trade group EUROBAT has expressed reservations about some aspects of the draft rules, including what it called "unrealistic lead times" for automakers to meet the rules, the amount of recycled content, and whether the same standards will apply to all types and sizes of batteries.

In fact, EUROBAT said that the draft rules as currently written could actually disadvantage European suppliers of batteries who are able to reduce raw material waste because then their recycled content would appear too low. "It would disproportionally benefit the import of batteries from non-EU countries where higher volumes of waste from batteries and other products (including manufacturing scrap) for the production of secondary raw material are available," EUROBAT explained.

Regardless, battery makers are stepping in line, in anticipation of the regulation. Northvolt has announced a goal that 50% of its raw material requirements will be sourced from recycled batteries by 2030. Volkswagen and Tesla also have large recycling programs underway, with Tesla saying it can recover 92% of the battery cell material.

Looking ahead

Experts agree that Europe's auto and battery industries are moving in the right direction, but that a great deal of work remains to be done.

Industry and government are focused on "autonomy and security of supply," Poliscanova said. "It's completely correct to develop the supply chain in Europe and US. The second thing is sustainability—how and under what conditions are we mining the minerals? How are we recycling batteries?"

EBA's members are also watching US developments, von Dalwigk said, adding: "We see a lot of good battery innovations that are being developed … and we share an interest in breaking Asian dominance."

With the array of projects announced across the supply chain, von Dalwigk said she's optimistic about the future in Europe. She cited Finland as the location of a great deal of cell manufacturing projects, thanks to having low-carbon energy and access to raw materials. She said European producers could supply as much as 40% of the materials for cathodes by 2025 and 70% in 2030.

While the setback for lithium mining in Serbia shows that obtaining domestic raw materials will be a challenge, von Dalwigk said even this could be turned around, under the right conditions. "Because we have very strict environmental protection laws, we can develop mining technology that we can export to other countries," she said.

Also on the agenda for states in Europe, as it is elsewhere, is extension of the vehicle charging network. "We are looking for governments to step in with more investment," von Dalwigk said.

This could be coming through revisions to the Alternative Fuels Infrastructure Directive, which are expected to create binding targets for each member state to install fast battery electric vehicle charging spots on highways and major roads across Europe, as well as hydrogen fueling stations.

Another area for government support is providing financial incentives for consumers in lower-income EU countries to reduce the upfront cost to purchase EVs.

Posted 26 January 2022 by Kevin Adler, Chief Editor