THE EU’S BATTERY VALUE CHAIN- THE DELICATE BUT CRUCIALLINK BETWEEN THE GREEN DEAL,INDUSTRIAL POLICY AND MOBILITY
If there is an industry where aspects such as global competition, action towards zero emissions, economic security and dependency on critical raw materials come together, it is the production and marketing of batteries, also ensuring mobility in the upcoming decades. The European Commission launched a strategic action plan on batteries in 2018 for the EU to become a global leader in this area. Afonso de Castro Malheiro, Head of Task of the audit the ECA conducted between 2022 and 2023 regarding this action plan, provides insights into the hurdles, implementation and impact of this EU industrial policy on batteries.
By Afonso de Castro Malheiro, Directorate for external action, security and justice
European Green Deal objectives imply a radical change
The 2019 European Green Deal is a flagship policy of the current European Commission. Its vision for 2050 is for the EU to have a competitive economy with net zero emissions of greenhouse gases. This not only shows great ambition, but also highlights that economic development and environmental protection will have to go hand in hand from the outset if that ambition is ever to materialise. Inevitably, the Green Deal hinges on the decarbonisation of transport — which is still responsible for around 25 % of the EU’s emissions today — and the decarbonisation of road transport in particular, which is the largest CO2 emitter among all transport modes. The Commission expects the EU wide fleet of zero and low emission vehicles to grow to around 13 million cars by 2025 and 30 million by 2030. The transition is already in motion, but the EU wants to accelerate it and ultimately enforce the uptake of these vehicles: sales of new passenger cars and light commercial vehicles using CO₂ emitting combustion engines should be all but banned by 2035, according to the most recent version of the regulation on the matter. In theory, the days of the tailpipe are numbered.
The interconnection between the economy and the environment then becomes painstakingly clear: the Green Deal implies a radical transformation of the EU’s automotive industry, which over a whole century built its reputation and global leadership on the production of combustion engines. The rise of the zero emission electric vehicle (EV) shifted the technological edge from pistons and fuel injectors to energy storage and management — the battery.
Conscious of the challenge, in 2018 the Commission published a strategic action plan on batteries, aimed at making Europe a global leader in sustainable battery production and use. It covered the different stages of the value chain (see Figure 1), identified strategic goals and proposed a range of tools to achieve them, including regulation and funding. Five years later, it was time for the ECA to assess the implementation of this plan and the results achieved
A successful industrial policy to become a global battery powerhouse?
We carried out our audit between 2022 and 2023, publishing our results in special report 15/2023: ‘The EU’s industrial policy on batteries — New strategic impetus needed’. We found that the Commission was, for the most part, successful in implementing its action plan, in effect launching an EU industrial policy on batteries. It promoted the gathering of relevant EU industrial and research stakeholders and the collaboration between them. It proposed and eventually achieved the adoption of a new wide reaching EU regulation aimed at ensuring not only the sustainability of the production and recycling of batteries, but also a level playing field between producers inside and outside the EU. The Commission also provided important financial support for the development and production of batteries, by drawing directly from the EU budget or by facilitating financing from member states under specific state aid rules. As a consequence, the EU’s battery production capacity has grown in recent years and is projected to continue expanding with new factories being announced and built in several locations (see Figure 2).
However, there were shortcomings in the monitoring of data, which was often lacking, and of funding, often uncoordinated. And, perhaps most crucially, access to raw materials — lithium, cobalt and graphite, just to name a few key ingredients of the modern battery — remains a major strategic challenge for the EU’s battery value chain. The EU still strongly depends on foreign supplies and faces a looming shortage, especially from 2030 onwards, as electrification will eventually lead to a global imbalance in a market largely dominated by foreign players, particularly Chinese and Korean. Evidence of this are the multiple Asian owned battery factories in Europe, or the recent accumulation of Chinese EVs in European ports, waiting to reach the final customer. In contrast, EU reserves of raw materials are limited in quantity and take up to 16 years to be exploited — that is, if mining projects obtain the necessary approvals at all (see Figure 3).
Batteries increasingly permeate our lives…
Our special report received large media coverage at the time of its publication in June 2023. Remarkably, the topic remains high on the agenda today. This is a subject that enters people’s kitchens (and garages) with ease. The relationship between humans and cars is often emotional. Many of us own and drive a car, and at some point may have considered or even switched to an EV. Many of us are determined to reduce our carbon footprint. Others are concerned about the affordability of EVs or where to charge them. Therefore, when we launched the audit back in 2022, motivation within the team was high: the topic was important and tangible, the timing was right. However, the audit work was not without its hurdles.
One was the all encompassing nature of the battery value chain: it ranges from the mining and refining of raw materials, to battery development and production, and eventually the recycling of those precious materials and their reintroduction into the production loop. The Commission’s action plan was therefore broad in scope and involved around 10 different Commission services in its implementation. It involved member states, industrial stakeholders and research institutions as well. Our field work brought us to governmental departments, inspiring laboratory experiments and state-of-the-art assembly lines. Although cooperation was good with all entities, the need to bring together the many pieces of the puzzle meant that the level of complexity was high nonetheless.
A second challenge stems from the lack of details on what it means to be the ‘global leader in sustainable battery production and use’ — the policy’s ultimate goal. Without quantified targets or proper data on actual battery production — another key finding of the report — assessing where we are, where we are headed and what progress we have made becomes particularly difficult (see Box 1).
Our report therefore called on the Commission to strengthen its monitoring with regular, up to date and comprehensive data, covering actual battery production in Europe and also the domestic production of raw and advanced materials needed to deliver the current and future generations of batteries. On the basis of good data, the Commission should renew its strategy for batteries so that it reflects the global evolution of the battery sector since 2018 and its current strategic challenges, especially the access to raw materials. EU funding should be better monitored and better targeted in the future.
…and hence the stakes are high
Strategic autonomy is at stake, global competition is fierce, and the EU’s nascent battery value chain needs new strategic impetus, if it is to survive and grow. The stakes are high. Failure means not reaching the zero emission targets for new vehicles in 2035 and continuing to pollute our atmosphere with an ever ageing fleet — EU cars are currently over 12 years old on average. If we do achieve those targets, but on the basis of imported batteries and EVs, it will be to the detriment of the EU’s automotive industry and its 3.5 million direct manufacturing jobs. In other words, only a fully successful EU battery value chain will allow for the EU’s simultaneous multipronged pursuit of climate action, industrial sovereignty, and affordable mobility solutions for its citizens.
Recent data gives cause for concern. At the end of 2023, the EU had a total fleet of 290 million cars and vans. Less than 2 % of them were fully battery powered. After growing to a market share of 14.6 % in 2023, sales of new battery electric vehicles appear to have stagnated. Market share in the first quarter of 2024 dropped to around 10 to 13 %, meaning that European drivers still largely prefer combustion engines. More charging stations and more affordable battery EVs in particular are key to changing this trend. Perhaps unsurprisingly, it is non EU brands that appear to have a competitive edge regarding price — to the point that the Commission has an ongoing investigation into possible illegal Chinese subsidies to the country’s automotive industry. A flood of cheap non-EU electric vehicles could surely push the EU towards its green targets, but pull us away from industrial sovereignty. Potential tariffs could do the opposite.
In any case, the EU is not shying away from the challenges and is pushing ahead. Since the publication of our report in June 2023, the EU’s new regulation on batteries has entered into force and two other pieces of legislation are close to adoption — the Net Zero Industry Act and the Critical Raw Materials Act. EU funding for research and development continues. All these have the potential to add to the toolbox available to the Commission and other stakeholders. However, the question remains and will have to be revisited: will the EU battery value chain be in a position to support the Green Deal?
