Europe’s energy independence

Up to now, the US and Europe have not been able to cut their dependence on China’s factories for manufacturing batteries. Batteries and the related technology are center stage for a successful deployment of the energy transition. China’s competitive advantage comes after years of strong government support for industries in building-up their infrastructure to gain independence from the western world. Like in the case of solar panels, this has resulted in the western world becoming dependent on China, which for many of us is now a real concern. 

Goldman Sachs estimates that for regaining independence for manufacturing batteries, the western nations will be required to proceed with new capital expenditures in the region of USD 160 billion within the next 5 to 7 years. 

As of now, China produces about 75% of the world’s batteries; this occurs mainly by using virgin resources. In contrast, the US and Europe deploy manufacturing strategies based on recycled components. According to a report published by the Financial Times, analysts believe that the pivot to protectionism in Washington and Brussels will require a multi-year-long spending spree by western companies. 

The issue western companies need to overcome is not the manufacturing of the batteries but how to reduce its dependence on the  processing industries of the raw materials. Today, China controls the global processing industry; about 80% of rare earth metals used for EV catteries and 60% of lithium are processed in China.

To obtain a self-sufficient supply chain, the following capital investments are required:

Manufacturing of…	Required capital spend (~)
Batteries	USD 78 billion
Components	USD 60 billion
Mining (Lithium, nickel, cobalt, amongst others)	USD 14 billion
Refining facilities	USD 12 billion

 

Announced investments to meet the targets:

 

Company	Announced capital spend (~)
Kentucky-based factories (sum)	USD 9.2 billion
Spain-based manufacturing facility	USD 5.1 billion
JV Honda and LG Energy Solutions	USD 4.2 billion
LG Chem	USD 3 billion
US Department of Energy	USD 3 billion
BMW production plant	USD 1.7 billion
ENTEK	USD 1.2 billion
SK	undisclosed
Imerys SA	USD 1 billion
Syrah Resources	undisclosed
JV Panasonic – Tesla	undisclosed
Solid Power (backed by Ford and BMW)	undisclosed
QuantumScape	undisclosed
Many others, unaccounted for	unaccounted

 

Given the above contrast between investment required and announced so far, Ross Gregory, partner in the electric vehicle consultancy New Electric Partners, was probably right when he said that to build the circular battery economy (hence a full or close to full energy independence) massive investments would be required and that by no means are they building up. While there was a surge in building some giga-factories, which goes unaccounted for in the above comparison, it looks like we are bound to China for quite some time when it comes to batteries.