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In 2010, BYD launched one of its first electric car models, the e6 electric taxi. The model was a flop, with poor performance and low sales. But neither the company, its investors or the Chinese government stopped their support for the company. Instead, Tang and Han models came a decade later, powered by quality lithium-iron batteries. In 2023, BYD sold over 3 million EVs globally.
In the wake of Northvolt’s collapse, Europe is having its “e6” moment.
Northvolt, the only European battery company already making some cells commercially, was last week forced to file for bankruptcy in the US. Its CEO stepped down, following the failure to ramp up quality production on time.
It’s hard to speculate why exactly the company struggled. But the Northvolt story embodies the continent's wider failure to scale critical clean technologies. While Europe talks big (and churns out good reports), it lacks the stamina and leadership to deliver the results.
Patience is a virtue
Failure is part of innovation, and much patience is required to scale complex technology like batteries from scratch. A new company can fail to produce one batch of battery cells, learn from it and get the next one right (or not). While everyone talks about Chinese EV and battery giants like CATL and BYD, few mention the e6 failure that BYD learned from.
But patience is hard to come by when it’s so easy to get high performance and cheap battery cells elsewhere. Chinese companies produced 2.2 TWh of battery cells last year, triple the size of its domestic market and significantly more than the global demand. Prices for cheaper iron-based lithium batteries are as low as US $59 per kWh according to Benchmark Minerals. Duties levied on importing those batteries into the EU are a mere 1.3%.
So, why would any western automaker bother with local start-ups that take time to ramp up? Only if they were required to source locally, as seen with a raft of battery building activity unleashed by the Inflation Reduction Act in the US.
The rules designed to have a similar effect in Europe – the carbon footprint and other sustainability requirements in the EU battery law – are delayed and questioned by governments which have been slow to phase out coal. This is an own goal, and undermines the EU’s major differentiation factor: producing batteries with the EU grid is at least a third cleaner than relying on a China-controlled supply chain.
EU regulates
Companies in Europe often blame regulation. But EU electric car rules – or the 2035 zero-emission car goal – have been the driving force behind dozens of battery gigafactory announcements. It creates an unbeatable market certainty for anyone in the business of making batteries, EV components or chargers.
Now this is being contested by laggard carmakers, oil suppliers and their political supporters. As a result, just 10% of the announced battery pipeline is likely to go ahead on T&E’s latest count. An overwhelming 60% is at risk of being delayed or scrapped, leading to a loss of billions of investment and up to 100,000 potential jobs.
It’s money, stupid
The EU’s ultimate Achilles heel is its failure to put its money where its mouth is, and deliver a sizable green investment fund to scale cleantech amidst fierce competition. Batteries might be abundant and cheap today, but not having any locally embedded expertise puts Europe at a significant resilience risk.
China’s current success has been in part enabled by the government's cheap credit lines to battery, component and mineral producers. The US IRA’s nominal budget of $369 billion is likely closer to $1.2 trillion, with almost two-thirds of this going to the battery supply chain. All the EU has offered to date is a €3 billion Battery Fund, with the first call more than a year late.
Europe’s tight fiscal rules are suffocating its own clean and digital tech goals, and must be revised. T&E estimates that at least €50 billion of public finance is required to support the local battery value chain by 2030, as a mix of grants, loans and de-risking tools.
Time to give up?
The e6 story shows how to lose a battle but win a war. Will Northvolt succeed in turning its fortunes around? Hard to say. But the real tragedy is Europe lacking a strategy and resolve to do what it takes to build a battery value chain.
The EU battery ecosystem will likely be a mix of experienced South Korean and Chinese manufacturers with, hopefully, at least a few homegrown players. To achieve that, EU decision-makers in Brussels and national capitals need to urgently revamp trade and investment policy, alongside keeping the 2035 EV market certainty intact.
