How do you spoil the mood of EU officials freshly returned from a beach holiday? Try mentioning batteries. Here’s a sure way to turn tanned, relaxed faces into pained grimaces.
The stakes are high. The EU is far behind China in the battery race where LFP (Lithium iron phosphate) cells are now sold for as little as $55/kWh. EU NMC - Nickel Manganese Cobalt - cells go for double that. Europe has no meaningful tariffs on cells, its companies are going through “manufacturing hell” and many may not survive the coming onslaught.
The head scratching is understandable. But a decision must be made. Do we want to have a European battery industry, yes or no? And are we willing to do what it takes?
Just like solar cells, Chinese battery cells may end up as an ultracheap commodity product available to all who want them. They can help power affordable electric cars and turbocharge battery storage to accompany the renewables boom. Cheap batteries will cut our dependence on imported oil and gas, create jobs in services, and cut emissions just like Chinese solar did.
At the same time, a tsunami of cheap Chinese batteries would spell doom for the old continent’s much hyped (and subsidised) battery factories. BMW pulling out of its €2bn deal with Northvolt offers a glimpse of what could be ahead. Hundreds of thousands of battery supply chain jobs are on the line.
The US has chosen a different path. It seeks to keep Chinese companies out with tariffs and other restrictions whilst showering made-in-America batteries with up to $196bn in IRA subsidies. The cost of this strategy is significant. Americans will pay more for battery cells just like they pay double for solar cells. But US battery industry investment is booming - some of it with licensed Chinese tech, an interesting model - whilst EU investment is faltering.
Europe tried and failed to copy the IRA. So the question boils down to whether it is willing to put up barriers to promote made in Europe batteries.
Is that a good idea?
Manufacturing with clean EU energy has major climate benefits and creates jobs. We don’t want to depend on an authoritarian superpower for all our clean energy technology. At the same time, it would be foolish to completely shut the door to Chinese technology. How do we square this circle?
Our goal should not be to keep the Chinese “out”. The likes of CATL are already “in” with factories and billions in investment. But how do we combine climate benefits, local jobs and access to the best technology?
The top priority is to introduce the long awaited EU battery carbon footprint rules and restrict sales of batteries manufactured with dirty energy. Made-in-EU batteries are at least 37% cleaner than Chinese batteries. Chinese companies will ultimately adapt to whatever green rules the EU imposes (e.g. by directly connecting gigafactories to clean energy), but a well-designed standard will favour greener, local production at least in the short term.
Secondly, the EU should make haste with its €3bn battery fund announced late last year. Part of the funding should be reserved for developing new, promising battery chemistries like Sodium-ion (which is compatible with EU producers’ NMC production lines) and software. The latter is where a lot of added value will be if cells get completely commoditised. States should be allowed to top up the EU grants with state aid without this counting towards the EU deficit rules (it is unclear whether this is now possible).
Thirdly, the EU could launch an investigation into made-in-China cells. It is likely such an investigation would find that the Chinese battery industry is generously supported. Just like for cars, tariffs would follow. An alternative, more gradual approach would be to increase today’s ultra low tariffs on all battery cell imports, including subsided US batteries. Our policy should encourage Chinese companies to produce in Europe through joint ventures or licensing deals.
Combined, this would secure the future of made-in-Europe battery making, throw a lifeline to struggling European companies, and cut emissions whilst ensuring Europeans have access to the world’s best and cheapest technology. Now is not the time to scratch our heads. Now is the time to decide.
