With the dawn of electromobility and the resulting increase in EV production, the market for EV batteries has seen consistently high growth rates over the past few years. In 2017, for instance, global EV-battery manufacturers produced an estimated 30 gigawatt-hours of storage capacity, almost 60 percent more than in the previous year—a trend that is poised to continue.
This market represents a substantial—but so far untapped—potential opportunity for European battery makers and carmakers, as well as for the European economy in general. Currently, the EV-battery market is dominated by players from only three countries, all of them in Asia: China, Japan, and Korea. In 2017, less than 3 percent of the total global demand for EV batteries was supplied by companies outside these three countries, and only approximately 1 percent was supplied by European companies.
In this article, we assess the potential market for EV-battery production in Europe and look at the major benefits of having such an industry located there. Moreover, we analyze the key decision criteria for battery-cell manufacturers when deciding the location of new production capacity.
Current situation: Electric-vehicle-battery-production paradox in Europe
Thus far, the EV-battery situation in Europe has been something of a paradox: while European carmakers have struggled to secure sufficient battery supply, investments in battery manufacturing have been concentrated in Asia. Of the 70 announced gigafactories globally, 46 are based in China. Unlike China, Europe does not have a coherent industrial strategy to attract large-scale battery manufacturing. The resulting challenges for this incumbent industry and problems with planned investment have even led some of Europe’s homegrown battery manufacturers to set up shop elsewhere—namely, China. Netherlands-based Lithium Werks, which already has two plants in China, announced plans in September for another. The company says it prefers to build plants in China because the infrastructure is better, and it is easier to get the permits needed to build a factory.
With limited local options for supplying batteries, European car manufacturers have largely secured supply so far by signing long-term deals with Asian producers. Daimler, for example, ruled out further investments in cell production in 2016 after an early venture in Saxony failed to secure sufficient demand. Nissan currently has a plant in Sunderland, United Kingdom, but is seeking to divest. Volkswagen does plan to produce batteries in Europe with SK Innovation, but it also has major supply deals with LG Chem, Samsung, and Chinese battery maker CATL.
With most car manufacturers opting not to produce batteries themselves and failing to secure supplies near their European plants, European car manufacturers run the risk of operating at a distinct disadvantage to competing car manufacturers that are closer and better able to secure battery supply as the demand for EVs grows. Consequently, there may be lucrative opportunities for battery manufacturers that establish facilities in the right places at the right times.
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SOURCE: McKinsey & Company
