The Challenges of the Battery Supply Chain in Europe: Between Growth Difficulties and Global Competition

The battery industry in Europe is facing numerous difficulties that hinder its competitiveness and progressive quest for self-sufficiency, particularly in view of the growing demand for electric vehicles (EVs).

Despite the projected expansion of the market, lack of adequate support and political and economic uncertainty are slowing the supply chain’s progress. Ten battery factory projects have been canceled in Europe from 2018 to the first half of 2024, a situation that adds to the projected shortfall in battery supply intended to meet EV demand, with a 72 percent shortfall compared to overall EV battery demand.

The Causes Behind the Difficulties of the Battery Supply Chain

The inability of local production to meet nearly three-quarters of the projected demand for electric vehicles is forcing Europe to continue to rely heavily on imports.

Although large European manufacturers have been able to expand their capacities, newcomers to the industry are struggling and facing cancellations. There are many structural difficulties affecting the battery industry in Europe. Here are the main challenges that shape the current landscape.

1. Decline in Demand for Electric Vehicles

In August, forecasts of battery demand for electric vehicles in Europe were lowered, estimating that it will reach 1,852 GWh in 2028, 22 percent lower than the estimate of 2,382 GWh circulated in August 2023.

This decline is mainly attributed to the lack of adequate incentives for both EV manufacturers and consumers. The rising costs of electric vehicles and the increasing difficulty in accessing supportive policies are slowing the growth of the European market.

For this reason, many European manufacturers are reviewing their strategies, reducing production capacity or moving to countries such as the United States or Southeast Asia, where policies are more favorable.

2. Changes in Battery Chemistry

Another obstacle is the transition of battery chemistry. Today, 91 percent of operating plants in Europe produce nickel-manganese-cobalt (NCM) batteries. However, cancellations in Europe have mainly focused on plants producing this type of battery due to the growing interest in lithium-iron-phosphate (LFP) batteries.

Although LFP batteries have a lower energy density than NMCs, they are significantly cheaper and have a more stable chemical structure, making them safer and more suitable for short-range vehicles.

3. Lack of Government Support and Inadequate Regulations

One of the main obstacles for the battery industry in Europe is the lack of structured government support.

Funding difficulties and complex regulations have hindered the start-up of new battery factories. The failures of many battery manufacturers, even before completing their plants, highlight the need for strong and clear support at the level of investment and regulations that can incentivize local production.

In Europe, the process of obtaining approval for a battery manufacturing plant can be long and complex: in Germany, for example, final environmental approval can take up to two years, but the actual timeframe is often extended to three to five years due to the complexity of projects.

4. Sustainability of the Supply of Critical Raw Materials

Another critical issue concerns the development of regional supply of key raw materials for battery production, such as lithium, cobalt, and nickel.

Despite European efforts to become self-sufficient in the production of these materials, difficulties remain high. Lengthy permitting processes, local community opposition to lithium mining projects, limited cobalt and nickel reserves, and the environmental impacts of graphite production make a rapid transition to self-sufficiency difficult.

European legislation, such as the EU Critical Raw Materials Act, sets a target of meeting 40 percent of material demand from domestic production and 10 percent for extraction by 2030.

However, the absence of new funding for these critical minerals risks creating vulnerabilities in the supply chain and uncertainties for investors.

5. U.S. Subsidies: An Attraction for Manufacturers

Many battery manufacturers are moving their production to the United States thanks to clear incentives and supportive policies put in place by the Inflation Reduction Act. In particular, the introduction of the investment tax credit and tariffs to promote local production have made the United States a competitive hub for battery industries.

However, the U.S. political environment could become uncertain with a possible re-election of Donald Trump, increased tariffs on Chinese imports, and new measures that could penalize critical raw material supplies from China.

These changes could make domestic battery production more competitive, but they could also increase costs for manufacturers, pushing companies even more to seek alternative solutions to remain competitive.

The Uncertain Future of the Battery Industry in Europe

In summary, although Europe is making significant progress toward expanding its battery industry, the challenges it faces are numerous and complex.

Global competition, difficulty in sourcing critical raw materials, and lack of consistent government support threaten to slow the path to self-sufficiency. Europe will need to address these issues with stronger policies and a long-term vision to remain competitive.

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