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The emerging European battery supply chain

Europe looks to regionalize battery supply chains to capitalize on EV growth


March 24, 2021 

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The European Commission describes the auto market as “crucial” to the European economy. It represents 7% of the European Union’s GDP. And 6.1% of total employment.

The electric vehicles (EV) segment of the auto market is growing. In 2020 its market share doubled in Europe from 5.7% to 11.9%.

We discussed Europe’s emerging battery supply chain in a recent webinar. Fastmarkets experts William Adams and Charlotte Radford were joined by industry experts Robert Baylis from Johnson Matthey, Stephanie Clement de Givry from Société Générale, and Ryan Hanrahan from Wave International.

Read on for the highlights of that discussion or watch the full 60-minute webinar here.

As one of the biggest producers of motor vehicles globally, Europe wants to capitalize on the growth of EVs and keep its position in the market. Profiting from EV growth is a high priority for both governments and market participants.

Covid-19 exposed the risks of a long battery supply chain. It also showed the dependency Europe has on other countries. So regionalizing the battery supply chain has become a strategic priority.

The beginnings of regionalization

The European auto market was already shifting towards electric vehicles. European EV sales slowed in 2018 but picked up in 2019. Pre-pandemic forecasts expected 2020 would follow this trend.

Then Covid-19 struck.

But, despite the pandemic, European EV sales in 2020 saw 140% year-on-year growth. 63% more than forecast.

Europe's position in the battery supply chain

Explore the trends and issues facing the battery supply chain in Europe. 

Join experts from across the market as they discuss the key issues facing the market as changes continue to develop. 

Watch on-demand

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Government incentives and initiatives were key to driving growth. Countries with the biggest incentive packages, such as France and Germany, saw the biggest growth.

The pandemic had a major impact on the European economy. In response, the European Commission (EC) announced a €750 billion recovery fund, allocating 37% for green initiatives. The UK government announced £12 billion to create and support green initiatives.

The EC has also approved an Important Project of Common European Interest in the battery value chain. This will provide €2.9 billion for the research and development of the battery supply chain. The EC expects to add an estimated €9 billion in private investment to this project.

European governments are looking to invest in industries that will boost the economy and create jobs. An EV market with a shorter supply chain will also help these countries meet climate change and emissions targets.

Covid-19 caused border closures, quarantines, and logistical disruptions. Disruption in one part of the supply chain had a knock-on effect. For example, South Africa entered a nationwide lockdown in spring 2020. Leading to delays at borders and bottlenecks at the port of Durban. This triggered miners to divert their exports via other ports in Africa and prioritize their long-term contractual obligations, lending short-term support to hydroxide payables.

The risks of depending on existing, lengthy, supply chains could not be ignored.

Redeveloping the supply chain

European EV manufacturers are reliant on raw material imports. Most raw materials come from outside Europe, mainly South America, Africa, and Australia. The main battery production facilities are in Asia. This has created a long supply chain with a heavy carbon footprint.

Europe is looking to mirror the supply chain set-up in Asia. Where intermediaries, battery producers, and auto manufacturers are in regional proximity. This ensures timely deliveries, reduced costs, closeness to the consumer, and less risk of disruption to supply.

Downstream has begun to respond. Major auto manufacturers in Europe are reworking their existing facilities and building new capacity to meet demand.

New electric battery gigafactories are planned in places like the UK, Sweden, and Italy. This puts battery production closer to car manufacturers. And closer to a large market where the vehicles will be sold.
 
Electrode intermediary facilities could move into Europe as well.

The changes to the European supply chain are in their infancy. There are large parts of the value chain that don’t exist at the moment. This is an opportunity for new participants to enter the market. For example, through investment or equity valuations.  

Spanish consortium Battchain is seeking funding, some of which will come from the EC’s recovery fund. This group will focus on expanding Spain’s battery value chain, from locally sourcing raw materials to battery recycling.

The Battchain initiative joins the multiple projects that are bringing the sourcing and production of batteries and EV tech within Europe.
 
The upstream of the supply chain is not seeing as much investment as downstream. Investment cycles in raw material production are long. And prices of those materials have been low, dampening interest.

With capital for investment available, it will be interesting to see where participants choose to enter the market.

New paths in an existing market

EV sales in Europe grew despite the impact of the pandemic. Covid-19 did not stop overall growth but it did expose the risks and dependencies in the current supply chain.

Raw material sources within Europe won’t keep up with long-term demand. So a completely autonomous supply chain is not possible. However, regionalizing a large part of the supply chain will reduce the risk of disruption and secure the supply of materials.

New or expanding capacity in this market will create new jobs and protect existing ones.  Regionalizing supply chains will reduce carbon emissions and reduce supply disruptions. It also opens up the market to new participants. These are key benefits for the European economy.

As the auto market is crucial to the European economy, shortening the battery supply chain is essential for continued growth.