Focus: Europe leans on Asia for 'homegrown' EV batteries

Lilium NV

03/11/2022 06:00

By Nick Carey and Victoria Waldersee
       LONDON/BERLIN, Nov 3 (Reuters) - Europe's drive to build
a homegrown electric vehicle battery industry is hitting
roadblocks as investors shy away from giving startups sufficient
funding to challenge the Asian companies that dominate the
market.
    With the notable exception of Sweden's Northvolt, some
startups hoping to build so-called gigafactories to compete with
the Asian behemoths are going for smaller plants, with the aim
of attracting more investment further down the line.
    Britishvolt is just one of the startups with grand ambitions
to run into trouble. It wants 3.8 billion pounds ($4.4 billion)
to build a gigafactory in northern England but its plans are
hanging by a thread as it struggles to lure enough investment. 
    Unlike Northvolt, which formed a joint venture with German
carmaker Volkswagen  VOWG_p.DE  in 2019 and struck a long-term
supply deal with BMW  BMWG.DE  in 2020, Britishvolt has yet to
sign any major customers or test its technology on a commercial
scale.
    "Nobody will give you an order on the strength of a
PowerPoint," said David Roberts, who has invested in several
British firms to focus on zero-emission cars. "You're looking at
six years before you have real sales, so where the hell do you
get $5 billion plus operating costs without an order?"
    That's why a number of European startups are taking the
slower route, building smaller, cheaper plants with a capacity
below 1 gigawatt-hour (GWh) - dubbed "megafactories" - to
produce cells at scale and then win contracts from carmakers.
    French battery startup Verkor, for example, announced on
Wednesday that it had raised 250 million euros ($249 million) to
fund a megafactory. 
    Chief Executive Benoit Lemaignan described it as a "baby
step", before the company embarks on raising funds for a 1.6
billion euro 16 GWh gigafactory that should open in 2025 and
will supply French carmaker Renault  RENA.PA .
    ASIAN MARKET SHARE
    The European Union, which launched the European Battery
Alliance in 2017 to kick-start a homegrown industry, wants
companies in the region to provide 90% of the batteries needed
by 2030 to power the energy transition on the continent.
    When it comes to electric vehicle (EV) batteries, Benchmark
Mineral Intelligence (BMI) estimates that Europe should have a
manufacturing capacity of 1,200 GWh by 2031 if current plans
come to fruition, outstripping expected demand of 875 GWh. 
    But of that 1,200 GWh, 44% will be provided by Asian
companies with factories in Europe, ahead of homegrown firms on
43% and Tesla  TSLA.O  with 13%, according to a Reuters
calculation based on BMI data.
    What's more, Caspar Rawles, BMI chief data officer, said
some of the plants being planned by European companies "won't
ever make it off the drawing board".
    At the same time, the Chinese, South Korean and Japanese
firms that dominate the market are more likely to follow through
because they already have contracts with global carmakers and
experience building gigafactories around the world, he said.
    "The vast majority of European capacity is going to be
Asian," Rawles said.
    European carmakers BMW, Mercedes-Benz  MBGn.DE , Stellantis
 STLA.MI  and Volkswagen have all signed offtake agreements from
plants under construction by Asian players, such as China's CATL
 300750.SZ  and South Korea's LG Energy Solution.  373220.KS .
    And China's Envision AESC, for example, is already
considering building more plants in Europe. 
    The European Battery Alliance (EBA) acknowledges Asian
firms, and Chinese companies in particular, are likely to
increase their market share in the coming years, helped by their
track record and offtake agreements.
    'A LONG AND WINDING ROAD'
    "The European Commission and the member states should be
aware that if we want to have at least some resilience,
knowledge and know-how in battery production, you need to have
some domestic supply," said EBA policy manager Ilka von Dalwigk.
    "Even if we have the production in Europe, it doesn't mean
we have the know-how or the control," she said. "For the moment
we see Northvolt - but as for the other initiatives, there is
still a long and winding road to go." 
    Besides Northvolt, which delivered its first lithium-ion
batteries from its Swedish gigafactory this year, another
homegrown company is Automotive Cells Company (ACC), a venture
between French energy giant TotalEnergies  TTEF.PA , Stellantis
and Mercedes-Benz. 
    ACC is aiming for a capacity of 120 GWh by 2030, requiring 7
billion euros in equity, debt and subsidies, but its first
gigafactory in northern France is still under construction.
    Italvolt is aiming to build a 3.5 billion euro gigafactory
in northern Italy. It has not announced any fundraising plans
yet but told Reuters that a joint venture would get the plant
off the ground, promising further details soon.
    Other startups taking the slower route to gigafactories
include Slovakia's InoBat. 
    It will open a 45 megawatt-hour (MWh) pilot line in
Bratislava early next year to produce high-performance batteries
for customers to test and has signed agreements, including with
German air taxi developer Lilium  LILM.O , worth 500 million
euros by 2030, Chief Executive Marian Bocek said.
    He said InoBat had a pipeline of potential agreements worth
25 billion euros and aims to build production capacity in 4 GWh
increments starting in 2025 - costing up to 400 million euros
each - as contracts are signed.
    "You don't have to raise billions of dollars, you basically
raise money for the offtakes you sign on the back of bankable
customers," Bocek said.
    German startup Theion is developing lithium sulphur
batteries and Chief Executive Ulrich Ehmes said the startup aims
to raise 50 million euros for a small plant to build samples for
automotive and aerospace companies - and then seek funds for a
first gigafactory of up to 20 GWh.
    'IT'S A BIG ASK'
    Another startup with a gigafactory in its sights is
Britain's Ilika  IKA.L , which makes small solid-state batteries
for "electroceuticals", or medical implants, for the U.S. market
at a small plant in Romsey in southern England. 
    Chief Executive Graeme Purdy said Ilika would seek a joint
venture with a U.S. manufacturer for mass production of the
small cells and will take the same approach for its EV battery
project "Goliath."
    The startup will build a megafactory, likely in partnership
with a carmaker, then seek a joint venture or license the
technology to a battery maker to make at a gigafactory, rather
than try to raise billions itself.
    "It's a big ask," Purdy said. "Rather than trying to
reinvent wheels on our way to doing that, we'd rather work with
an organization that has done it previously."
    British sodium-ion battery startup Faradion, meanwhile, has
chosen a different route, selling out to Indian conglomerate
Reliance Industries  RELI.NS  last year for an enterprise value
of 100 million pounds. Reliance is aiming to build a 50 GWh
plant in India.
    "When you have a new chemistry like this, you need a
champion behind it," Faradion Chief Executive James Quinn said. 
    The EU has approved 6.1 billion euros since 2019 in funding
by member states for battery research and innovation while
Britain has a 1 billion pound fund to support investments in EV
supply chains. Some are looking for more help from politicians.
    InoBat's Bocek said he was lobbying Brussels to favour EV
batteries developed and designed by European firms - using local
raw materials wherever possible - similar to the approach
adopted by the United States to encourage domestic production
with its Inflation Reduction Act.
    "We cannot compete with the Chinese on cost," said Bocek.
"But we can compete when it comes to a localised value chain."
   ($1 = 1.0052 euros)
   ($1 = 0.8705 pounds)
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Chinese firms own most global planned battery capacity    https://tmsnrt.rs/3Ug6DxP
European battery cell startups planned capacity by 2031    https://tmsnrt.rs/3Wlvq5u
CATL, Northvolt and Tesla plan largest battery plants in Europe 
  https://tmsnrt.rs/3Fw39mr
Asian firms lead on planned battery capacity in Europe    https://tmsnrt.rs/3zujVyJ
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Nick Carey in London and Victoria Waldersee in
Berlin; Editing by Ben Klayman and David Clarke)
 ((nick.carey@thomsonreuters.com; +44 7385 414 954;))