View attachment 73677
View attachment 73678
Swedish battery manufacturer
Northvolt, once the poster child of Europe’s green industry and battery independence, has narrowly
avoided bankruptcy prompted by a liquidity crunch – despite a remarkable $55 billion order book and $15 billion raised in debt, equity, and subsidies. Now Northvolt’s near-death experience is raising serious concerns about the future of made-in-Europe batteries. For the European Union to successfully maintain a sector critical to the continent’s industrial future, energy transition, and critical infrastructure, it must urgently develop and implement a decisive economic security doctrine which secures Europe’s place as among the leaders in the global battery race.
On Europe’s shores
Northvolt’s aggressive
vertical integration may have diverted focus from its core battery cell business; but its struggles reflect deeper structural issues in Europe’s battery industry. Despite announcing
€180 billion of investment in the continent’s battery ecosystem,
over half of planned gigafactories face delays or even cancellation. Aside from Northvolt, the only other significant EU-headquartered battery manufacturer, Automotive Cells Company, has
halted projects, while Norway’s Freyr Battery has
shifted investment to the United States to benefit from tax incentives.
Prospects for European production of
high-value battery components like cathodes, anodes, electrolytes, and separators are even grimmer. Although demand is rising, the need for components exposes the EU battery industry to severe dependencies on China, which controls
80 per cent of the global components market. Only Umicore in Poland and BASF in Germany and Finland
have begun cathode production,
while anode production is nowhere to be found in Europe.* Separators and electrolyte investment, meanwhile,
comes exclusively from China and South Korea.
The China problem
Overall, several factors are contributing to the bleak outlook for Europe’s battery industry.
First, a
declining demand in the EU for electric vehicles (EV) is harming domestic battery producers. Second, China’s battery companies
excel in innovation and benefit from
manufacturing excellence, outcompeting European rivals. Third, prices for raw materials like lithium, cobalt, manganese, nickel, and graphite are rapidly
declining due to global oversupply.
Continual price volatility and
local resistance to the opening of lithium mines impedes the
business case for European projects. China’s
dominance in raw materials also offers its battery-makers cheap and
privileged access to the necessary resources: European companies must compete across each supply-chain segment, whereas Chinese state firms can produce raw materials at a loss and thereby bolster battery- and EV-makers further downstream. As a result, Europe is not competing against individual companies – but rather against entire supply chains.
Furthermore, Chinese overcapacity in battery cell production means
battery prices in China are now 50 per cent cheaper than elsewhere. Chinese plants can already produce over
triple the domestic demand. This overcapacity is an existential threat to Europe’s fledgling battery industry. If these dynamics continue, the business case for made-in-EU batteries will diminish significantly.
Shifting gear
Batteries are at the heart of geoeconomic competition for control and access to strategic industries. Beijing, which is busy
tightening controls over its technology exports to leverage dominance in the value chain, has already
weaponised batteries and
raw materials. Meanwhile, Washington’s strategy is
bent on creating China-free supply chains, with EVs in its crosshairs.
But Europe’s
current battery strategy remains mute on these geoeconomic dynamics. The EU therefore needs a comprehensive economic security doctrine that specifies which parts of the supply chain struggles against foreign competition and which could be competitive; which parts of the industry may need short-term protection, subsidies, or open trade; and which elements of the supply chain need priority focus due to being at high risk of weaponisation.
Most importantly, each solution laid out in an economic security doctrine should provide mutual support for the other and explain how each entity – whether EU member states or the European Commission – is responsible for each step.
1. Diversification
In supply chain areas where Europe cannot compete on cost or lacks major industrial players, the EU should focus on finding different partners to lower the risk of reliance on single suppliers.
For example, silicon-based anode production is a promising alternative to graphite anodes, where China has a 97 per cent market share. Researchers and companies in the US and South Korea are leading in their development. If the EU can support its allies in advancing innovation, in turn these partners would support the bloc’s economic security through diversification.
One tool with which the EU could advance such battery partnerships is through
Clean Trade and Investment Partnerships, which promise to identify partners with manufacturing, innovation, or the material capabilities the EU lacks. To bring these partnerships to life, the EU will have to provide strong offers, such as co-funding battery research programmes or financial support to ramp-up production. In this way it would support manufacturing of battery components in countries which have lower labour and energy costs, making them a competitive supplier to the EU.
An economic security doctrine which
identifies how European industry could
land amid the victors in the ongoing
‘battery wars’ is the EU’s best chance
2. Made in the EU
In supply chain areas that are deeply integrated with the EU automotive base, promise significant jobs, and could be weaponised, the EU should support “made-in-EU” measures for battery cells, components, and recycling.
This approach would not exclude foreign companies from production in the bloc – on the contrary, some 90 per cent of battery cell production in Europe is in the hands of Korean companies. Rather, EU leaders should ensure Japanese and Korean greenfield battery investments will continue while simultaneously preventing the continent from becoming an assembly hub.
However, this strategy still needs to ensure the right market conditions on the continent. It first requires the EU’s latest
battery regulation, which aims to strengthen sustainability rules for batteries, to include strong CO2 footprint disclosures favouring green and made-in-the-EU production. Second, the EU should consider extending Chinese EV countervailing duties to EV components such as batteries to ensure Chinese EV makers in Europe are incentivised to use local-made batteries. Third, the commission should implement the
Foreign Subsidies Regulation which targets foreign battery firms benefitting from EU subsidies.
At the same time, made-in-EU parts of the supply chain require targeted state support to scale-up production. The commission now operates a €3 billion
Battery Fund which should prioritise supporting companies with EU-based sourcing and low-carbon supply chains. But a substantial financial support instrument with a single rulebook is needed for the EU to have strategic steer on which parts of the supply chain need its full support.
3. Infant industry
Where EU innovation is competitive and could lead to technological breakthroughs for the battery industry, the bloc should prioritise scaling commercial production and, if necessary, using trade protections such as tariffs until the industry matures.
For example, solid-state batteries –
considered the
most promising next generation of battery innovation – is an infant industry in which EU players are better positioned to be competitive. France’s Blue Solutions is already selling solid-state batteries for buses, while Germany’s Schaeffler, Spain’s Basquevolt, and the Dutch Lionvolt are also trialling innovations.
To support these players against multibillion-dollar competitors and a
Chinese state fund, the EU needs to close the
scale-up finance gap by deepening capital markets and nurturing the venture capital scene. EU policymakers should also prevent foreign competitors from using their scale to undercut a promising infant battery industry, meaning short-term trade protections should be in consideration for the single market.
4. Security
As batteries underpin renewable-energy grids, they are becoming central to critical infrastructure and require a more focused security approach. With battery-storage systems also vulnerable to
cyberattacks, the EU would be wise to conduct a targeted analysis of the battery-specific risks to Europe’s energy grid, especially where the US-China rivalry or other geopolitical events could have a major impact.
Batteries are already being weaponised. For example, Beijing sanctioned America’s largest drone maker, Skydio, which banned Chinese battery sales to the company – and this is Ukraine’s largest drone supplier. The defence industry must therefore also consider their risk exposure and, where feasible, defence planners should prioritise procuring innovative and resilient battery supplies. A strong stance on defence would also support Europe’s battery supply chain.
Finally, if companies like Northvolt are forced to sell assets, European governments should use investment screening tools to prevent deepening dependencies on strategic rivals. The commission’s
FDI screening revision proposal mandates screening investments in “critical technology” sectors, including energy technologies. Increased support for this initiative is essential for the EU to develop a more unified investment landscape.
Battery wars
Batteries are at the heart of geoeconomic competition. China’s economic policies have helped create the market – but in doing so, the country has the market cornered. With other powers vying for control and influence over a technology which is helping define Europe’s industrial future and energy transition, the EU faces some tough decisions. An economic security doctrine which identifies how European industry could land amid the victors in the ongoing ‘battery wars’ is the EU’s best chance at preserving a global balance of industrial power.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors."
Northvolt’s near-collapse demonstrates why the EU needs an economic security doctrine to identify where in the battery supply chain Europe can create winners – and then go all-in for success. If Europe continues down the same path, its battery industry will hit a wall
ecfr.eu
*You know the reasons.
Northvolt's German subsidiary, on the other hand, is not part of the proceedings. According to its own statements, it will be financed independently of the parent company. A battery cell factory is to be built at the Heide site in Schleswig-Holstein. Federal Minister of Economics Robert Habeck (Alliance 90/The Greens) is "cautiously optimistic" despite the current developments.
