Insight: Europe up against Asian juggernaut in electric car battery drive

GS Yuasa

05/06/2018 07:30

* Europe has plan to catch up with Asia in EV battery sector
    * BYD latest Asian firm looking at European battery market
    * Only two European companies planning to build plants
    * GRAPHIC-European EV battery supply: https://tmsnrt.rs/2JnDSOX
    * FACTBOX-EV battery cell production in Europe  urn:newsml:reuters.com:*:nL5N1SU5M6

    By Eric Onstad, Christoph Steitz and Esha Vaish
    LONDON/FRANKFURT/STOCKHOLM, June 5 (Reuters) - Chinese
electric vehicle giant BYD  1211.HK  is looking at launching
battery production in Europe, joining Asian rivals aiming to
cash in on a green car revolution and threatening attempts by
Brussels to nurture a home-grown industry.
    Keen to capture a European car battery value chain that will
be worth an estimated 250 billion euros ($290 billion) by 2025,
the European Commission launched an alliance of local companies
last year aiming to build 10-20 huge battery factories.
    But only Sweden's Northvolt http://northvolt.com and
Germany's TerraE https://www.terrae.com have plans for large
lithium-ion battery factories in Europe so far and some leading
European carmakers have already struck deals with Asian
suppliers setting up in Hungary and Poland.
    "We are considering cell production outside of China and
that includes Europe," Julia Chen, Global Sales Director at BYD
Batteries, told Reuters, speaking about the production of both
automotive and home storage batteries.
    BYD  002594.SZ , which also makes electric buses, cars and
solar panels, said it was not clear where in Europe a battery
site might be. "It would be possible wherever there's a market."
    The company, which is backed by Warren Buffett's Berkshire
Hathaway  BRKa.N , joins Korea's SK Innovation  096770.KS ,
Japan's GS Yuasa Corp  6674.T  and China's Contemporary Amperex
Technology (CATL)  300750.SZ  in looking to locate battery
plants in Europe.  urn:newsml:reuters.com:*:nL5N1SU5M6 urn:newsml:reuters.com:*:nL3N1NZ6JV
    South Korea's LG Chem  051910.KS , Samsung SDI  006400.KS 
both have European factories due to open soon while China's GSR
Capital already produces battery cells at a UK plant it bought
from Nissan  7201.T .  urn:newsml:reuters.com:*:nFWN1MN024  urn:newsml:reuters.com:*:nL4N1KV1A1
    While Asian electric vehicle (EV) cell battery factories in
Europe would bring jobs, Brussels is concerned companies in the
bloc are missing out on a growth industry and risk becoming
dependent on foreign technology.
    "We have to move fast because here we are in a global race.
We need to prevent technological dependence on competitors,"
European Commission Vice President Maros Sefcovic said at the
launch of the European Battery Alliance's https://ec.europa.eu/growth/industry/policy/european-battery-alliance_en
 action plan in May.
    But some investors say they are wary of backing European EV
battery suppliers after seeing local solar panel firms founder
in the face of cheap Chinese imports over the past decade.
    European battery companies would need billions in EU support
to rival Asian firms that have received similar state subsidies
and Brussels may be better off promoting next-generation
solid-state EV batteries instead, investors say.
    "I don't believe anyone in Europe can be competitive with
the Asians," said Gerard Reid, founder of Alexa Capital, which
advises firms in the energy, technology and power infrastructure
sectors.
   (For a graphic showing European EV battery supply and demand:
https://tmsnrt.rs/2JnDSOX)
    
    'GREEN' BATTERIES
    Electric and hybrid vehicles are expected to account for 30
percent of the global auto market by 2030, according to metal
consultants CRU https://www.crugroup.com, up from 4 percent of
the 86 million vehicles sold last year.
    Global automakers plan to invest at least $90 billion in
electric cars and batteries, the most expensive component in the
vehicles, to finance hundreds of new models over the next five
years.  urn:newsml:reuters.com:*:nL1N1PA0OJ
    For now, carmakers in Europe have been importing batteries
from Asia, but as production ramps up that will become less
viable. Setting up production in Europe would cut shipping costs
by a quarter, consultancy P3 Group https://www.p3-group.com/en
estimates.
    But some carmakers are not waiting for a European industry,
instead signing contracts with Asian firms coming to the region.
    German's BMW  BMWG.DE  said it was not involved in the
European alliance while Europe's biggest automaker, Volkswagen
 VOWG_p.DE , said it plans to get batteries from LG Chem's
Polish factory due to open this year. Mercedes maker Daimler
 DAIGn.DE  has awarded a contract to CATL.
    The European Commission's plan https://eur-lex.europa.eu/resource.html?uri=cellar:0e8b694e-59b5-11e8-ab41-01aa75ed71a1.0003.02/DOC_3&format=PDF
 calls for 110 million euros in battery related research, help
for projects from a 2.7 billion euro EU innovation fund and the
development of an EU "green battery" trademark.
    Supporters of the initiative argue Europe can carve out a
niche by selling green batteries produced with renewable energy
and ethically sourced raw materials.
    
    FINANCING ROUND
    Northvolt, which has held talks with European automakers,
aims to launch its $5 billion gigafactory in late 2020 and
produce 32 gigawatt hours of battery capacity each year by 2023.
    But investors have been cautious about pouring money into
new European battery ventures.
    Northvolt's first financing round, intended to raise 80
million euros to 100 million euros to help set up a test
factory, took slightly longer than expected, a spokesman said.
    In the end, the bulk of the financing was provided by the
Swedish Energy Agency http://www.energimyndigheten.se/en and the
European Investment Bank http://www.eib.org, which provided a
loan of up to 52.5 million euros.    
    Much of the profit from the battery value chain is generated
by producers of raw materials, such as cobalt and lithium, and
those who assemble cells into complex systems, experts say.
    "There's been a bit of imbalance in that value chain and
that's one of the reasons you see a limited amount of players in
Europe," said Northvolt founder and Chief Executive Peter
Carlsson. "But we think that the model that we're applying is
changing this."
    Carlsson, who used to work for U.S. electric car pioneer
Tesla  TSLA.O , says Northvolt can make a profit through
economies of scale, by using cheap hydropower and controlling
the processing of raw materials.
    But Northvolt and TerraE will probably need about $2 billion
each in government funding to build their gigafactories - given
the state support provided for similar projects in Asia and the
United States, said Asad Farid, an associate director at private
bank Berenberg https://www.berenberg.de/en who specialises in
battery technology.
    Four months after the European alliance launch the world's
biggest automotive supplier, Germany's Robert Bosch  ROBG.UL 
abandoned plans to make battery cells, saying it was too risky.
 urn:newsml:reuters.com:*:nL8N1QI56P
    
    SOLID-STATE SOLUTION?
    Investors are wary because of their experience with solar
panel manufacturers as well as rapid advances in technology that
are slashing the price of battery packs, which consultants
Arthur D Little http://www.adlittle.com puts at $190-250 per
kilowatt hour now.
    "In battery manufacturing ... it's very much about scale. So
the established producers in Korea, China and Japan have clear
advantages over new entrants," said Simon Webber, lead portfolio
manager on the global & international equities team at Schroders
http://www.schroders.com.
    Tim Crockford, who manages Hermes Investment Management's 
Impact Opportunities Fund https://www.hermes-investment.com/uki/capabilities/equities/impact-opportunities,
 said he was more interested in European firms researching
cathode technology, areas with major barriers to entry in terms
of research and development.
    "The attraction of the industry decreases as you move
further down the value chain. Things like battery manufacturers
and the battery pack assemblers, it's much more fragmented
market with lower barriers to entry," said Crockford.
    While Hermes has avoided companies mass-producing EV cell
batteries it has taken stakes in a lithium producer and a
company that makes materials for battery cathodes, he said.
    The lithium-ion batteries used now are also likely to be
overtaken in a matter of years by so-called solid-state
technology that is expected to produce even cheaper batteries
with higher energy density.
    "The development cycle and the speed of technology progress
in batteries is so huge at the moment, there's an opportunity
for new and additional players to enter," said Timo Moeller,
head of the McKinsey Center for Future Mobility https://www.mckinsey.com/features/mckinsey-center-for-future-mobility/overview
 in Cologne.
    Developers in Europe believe that gives the region an
opportunity to catch up.
    "Everybody is developing solid-state batteries so the gap
(with Asia) will be narrower and narrower as we go along," said
Diego Pavia, CEO of InnoEnergy http://www.innoenergy.com, a
sustainable energy company that has invested in Northvolt.
   ($1 = 0.8543 euros)

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GRAPHIC-European EV battery supply    https://tmsnrt.rs/2JnDSOX
FACTBOX-Plans for battery cell production in Europe   
 urn:newsml:reuters.com:*:nL5N1SU5M6
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Laurence Frost and Bate Felix in Paris
and Tom Daly in Beijing; editing by David Clarke)
 ((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO;
 Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))