Looking at the global electric vehicle battery market, the development momentum of Chinese battery companies is fierce. According to SNE Research, in 2022, in the global power battery market, CATL and BYD are developing the fastest, among which CATL takes the lead, and far ahead. Last year, the global battery production capacity was 517.9 GWh, up 71.8 percent year on year. However, CATL alone installed 194.6 GWh, accounting for 37 percent of the market, and its production capacity increased 92.5 percent year on year. BYD, also of China, and LG New Energy, a South Korean battery maker, are vying for second place.
According to a recent study of Chinese direct investment in Europe by Rhodium Group and MERICS, from 2016 to 2022, China’s announced FDI in the global EV value chain quadrupled from 605 million euros to 24 billion euros. In the past five years, electric vehicle deals accounted for 19 percent of all foreign direct investment, and in 2022, 58 percent. The study noted that China’s expansion in electric vehicles has shifted from focusing on mining to directly building battery factories in key markets.
Taking Europe as the world’s second largest EV market, which cannot be ignored, the booming EV market means strong demand for power batteries. Chinese direct investment in Europe is moving into the EV value chain, especially in the battery sector. According to Rhodium research, Chinese investment in battery factories in Europe has become the main driver of Chinese direct investment in Europe. Since 2018, Chinese battery companies have announced $17.5 billion of investment in Europe, and they are expected to account for about 20 percent of Europe’s total battery capacity in 2030. So far, most of China’s investment in batteries has focused on modules and packs, while Chinese companies including CNGR and Enjie are also looking for opportunities in the upstream and downstream sectors.
According to Rhodium, Europe is the second largest EV market after China, with a relatively modern charging infrastructure, generous government subsidies for car purchases, and an interest in decarbonizing roads. Moreover, unlike Japan and South Korea, which have developed their auto industries, Europe has relatively few large domestic battery companies, and Europe remains open to Chinese investment. These factors present big opportunities for Chinese battery companies, including CATL and Honeycomb Energy.
Currently, the EU is passing legislation to bring green technology production back to Europe. However, battery subsidies under the US Inflation Reduction Act and high energy prices in Europe have created great uncertainty about the “Made in Europe” blueprint, which could lead to two opposite investment trends: investment from Europe to the US and investment from China to Europe. Rhodium says that because of the Lower Inflation Act and energy prices in Europe, companies including Tesla and Northvolt are slowing down their battery plans in Europe and looking to the United States instead. Europe’s share of global investment in lithium-ion batteries plummeted from 41% in 2021 to 2% in 2022, according to Bloomberg NEF. Adding to the Chinese companies’ difficulties with US efforts to exclude them, CATL has slowed down plans to locate plants in Carolina, Kentucky and Mexico. As a result, continental Europe is becoming more attractive to Chinese battery makers.
Chinese battery manufacturers’ investment in Europe is not just a “choice”, they also see their own opportunities in the green policy of the EU. Battery technology was on a list of eight strategic net-zero technologies when the Commission published its draft net-zero Industry Law in March. The draft sets a target for the EU to have close to or at least 40 per cent of annual demand for strategic net-zero technologies by 2030, allowing green technologies, including batteries, to be made in Europe to some extent.
Green mobility agency T&G evaluated about 50 planned battery gigafactories (those with rated capacity of 2 GWh or more) in January and predicted 32 of them could go ahead. According to T&G, among all announced construction projects, battery production capacity will reach 286 GWh in 2025, 616 GWh in 2027, and 1,395 GWh in 2030. Companies with the largest production capacity include CATL, Volkswagen, Freyr, ACC and Northvolt. About 58 per cent of European battery production in 2030 will come from European companies and 22 per cent from China. T&G reports that 50 per cent of lithium-ion batteries used in electric vehicles and energy storage in the EU were already made in Europe in 2022. If the right incentives are put in place and the projects come online, by 2027 100 per cent of the cells could be made in Europe and 67 per cent of the active material for the positive battery.
T&G also conducted a risk assessment of its European capacity plans for 1.8 TWh to 2030 based on data up to February 2023 and found that 16%, or 285 GWh, is at high risk and 52% is at moderate risk, meaning that by 2030, if no action is taken, In Europe, 68 per cent of capacity, or 1.2TWh, faces delays, downsizes or non-realisation. The evaluation criteria included six criteria: confirmed funding, confirmed location, construction and approval status, investment from European automakers or support from EU institutions, finalized plans in the United States, and cooperation with American automakers. China’s dominance of the electric vehicle supply chain and the US Inflation Reduction Act are game-changing, according to the report. In theory, Europe and the US could work together on battery supply chains, but in practice, the shortage of expertise, corporate capital and raw materials means that global competition for battery production is a zero-sum game.
In April last year, CATL received a license to produce eight GWh of cells per year at its plant in Thuringia, Germany. In January, CATL opened the plant, its first outside China. It has a preliminary capacity of 14 GWh, which means 30 million cells per year. The company will invest 1.8 billion euros in the plant, the first mass production of cells in Western Europe, and supply batteries to European carmakers including BMW, its European president said. BMW has ordered 7.3 billion euros worth of batteries from the Ningde era through 2031. The Ningde Era is also expected to be licensed to produce up to 24 GWh.
In T&G’s risk assessment, 32% of Europe’s battery capacity is at low risk by 2030, including 8 GWh of Ningde-era capacity in Germany. It can be understood in this way that for local European countries, the 8 GWh is not only the capacity of 8 GWh, but also the certainty of 8 GWh. Regardless of other political factors, the European Union’s blueprint for battery manufacturing in Europe and the US’s domestic battery incentive policy have created opportunities for Chinese battery companies in Europe.