Europe is being Electrified

Dear Friends & Shareholders,

So far, around 85% of battery cells for electric cars are produced in Asia. Only 3% originate in Europe. As European car manufacturers begin mass production of electric cars, this makes little sense. Transporting the battery cells or battery packs over great distances is both costly and antithetical to the reduction of greenhouse gases that electric cars represent. Consequently, numerous factories for the production of battery cells are being built in Europe – close to the car manufacturers.

In my last newsletter at the beginning of August I reported on Northvolt, the Swedish start-up planning a gigafactory about 800 kilometres north of Stockholm. In the first expansion stage, an annuak capacity of 8 gigawatt hours (GWh) is planned. Three years later, the output will be ramped up to 32 GWh enabling around 550,000 of the electrically powered ID.3 mid-range car from VW to be equipped. In addition to the facility in Sweden, Northvolt and VW intend to set up a plant in Germany together. Salzgitter – not far from VW’s headquarters in Wolfsburg – is under discussion as a location.

Other European car manufacturers are also planning to start their own cell production. For example, there is a German-French consortium in which the traditional German brand Opel and its French mother, the Peugeot manufacturer PSA, as well as the battery manufacturer Saft – also from France – are involved. Production is scheduled to start in about three years. One plant is planned in Germany and another in France. The whole project will be subsidized by the state. The total investment costs are estimated at 5€ to 6€ billion.

Asians Lead the Way

Producers in Asia are making much more ambitious plans. The world’s largest cell producer, Contemporary Amperex Technology Co. Limited, or CATL for short, is building a factory in an industrial area near the eastern German city of Erfurt. In the first stage, a capacity of 14 GWh is planned. This would be enough to equip 240,000 ID.3 with a medium-sized battery. Customers include Volkswagen and BMW, among others. However, CATL expects to expand the plant to a capacity of 100 GWh in the coming years. This would be more than three times the size of the Tesla and Panasonic Gigafactory in Nevada, which is considered to be the world’s largest battery cell manufacturing facility to date.

LG Chem is also active in Europe. Last year, the Korean group opened a factory in Wroclaw, Poland. However, for the time being the plant is only designed for 3 to 5 GWh. Customers include Daimler, Porsche, Volvo, Audi, Renault and Jaguar. Polish media report that this is just the beginning. LG Chem is planning to have a capacity of up to 70 GWh in Poland, equivalent to two Gigafactotries from Tesla and Panasonic.

A South Korean company, SK Innovation, also wants to start cell production as early as next year. A plant is currently being built about an hour’s drive west of the Hungarian capital of Budapest. The customer here is primarily Daimler. The capacity is to amount to 7.5 GWh. This would enable almost 100,000 electric SUVs EQS to be equipped by Mercedes.

Samsung SDI – also from South Korea – is active in Hungary, too. Here, however, the planned capacity is initially only 2.5 GWh per year. By way of comparison, VW alone plans to require battery cells of 150 GWh per year from 2025 onwards.

Tesla Not (Yet) Present

While Asian producers are gradually increasing their expansion plans, it seems that the American e-car pioneer has no concrete idea for Europe. While Tesla is concentrating on the construction of its second factory in Shanghai, China, in its Q2 shareholder letter the company said, “we are also accelerating our European Gigafactory efforts and are hoping to finalize a location choice in the coming quarters.”

In addition to the European car manufacturers and the Asian cell manufacturers, there are also a number of internationally less well-known companies that are prospectively planning to produce battery cells for cars. These include the German medium-sized companies BMZ Group and Varta.

Little is published about where the required raw materials will come from. Materials such as cobalt and lithium are not produced in Europe so far. So it remains exciting and the biggest challenge for battery manufacturers to determine what the entire supply chain of battery cells from Europe should look like.