Caixin Weekly | The Trap of European Lithium Battery Investments (AI Translation)

财新周刊｜欧洲锂电投资“陷阱”

The European Union's ambivalence toward its lithium battery industry is epitomized by Northvolt's recent bankruptcy filing of its gigafactory subsidiary in Sweden. Although Northvolt was positioned to spearhead Europe's battery autonomy, the company struggled with production capacity and technology advancements, eventually losing a €2 billion order from BMW.[para. 1] Northvolt's plight underscores broader difficulties within the European battery sector. Specifically, Chinese battery firms like SVOLT Energy faced hurdles such as prolonged construction periods, rigorous environmental assessments, and an inconsistent policy environment, all of which contributed to significant investment challenges in Europe.[para. 3][para. 5][para. 6]

From 2021 to 2022, China’s new energy industry saw rapid expansion, with companies eyeing Europe as a promising venture. Yet, the reality on the ground put a damper on expectations. Besides high operational costs, Chinese firms contended with sluggish electric vehicle adoption in Europe and increasingly strained geopolitical relations.[para. 3][para. 6] As a result, many Chinese companies are reevaluating their European strategy. SVOLT’s recent decision to withdraw from Europe reflects these mounting challenges, exacerbated by stalled partnerships like that with Stellantis, previously PSA Group, and the eventual closure of its battery factories in Germany.[para. 10][para. 15][para. 16]

Continental partnerships could potentially resolve these difficulties, with Chinese battery manufacturers contemplating joint ventures and technology licensing. These strategies could mitigate geopolitical risks and facilitate local industry capability enhancement.[para. 20] High-profile voices within the EU also advocate for joint ventures, suggesting these projects as a method to retain technological know-how within Europe while leveraging China's expertise in scaling production.[para. 21][para. 22]

The U.S.'s Inflation Reduction Act poses further competition for Europe's battery ambitions. The law, which offers large subsidies to advance the clean energy sector, has enticed companies like Tesla to refocus operations domestically, potentially outpacing Europe in battery production by the end of 2024.[para. 33]

Moreover, the EU persists in its aim to attract investment within its borders but faces a dilemma. The EU wants technological sovereignty without ceding control to dominant foreign companies. On one hand, the EU desires investment for job creation and tech transfers; on the other, it hesitates to enable rapid expansion fearing dominance by foreign enterprises, particularly Chinese ones.[para. 35][para. 40]

Upcoming EU regulations, such as the Electric Vehicle Battery Carbon Footprint Calculation Rules, are expected to regulate the carbon emissions of batteries produced or sold in the EU. Expected by early 2024, these rules stipulate that by 2028, any battery products exceeding set carbon footprint thresholds will be barred from sale in the EU. This directive poses additional complications for Chinese manufacturers, who may struggle with compliance.[para. 43][para. 45]

Moreover, European nations diverge in their ease of attracting battery investments due to disparate energy profiles, which influence battery carbon footprints. For instance, countries like Germany and Hungary, favored by Chinese companies, might face challenges due to higher carbon footprints associated with their energy mixes.[para. 85][para. 90]

Ultimately, while the EU seeks to bolster its battery industry through strategic policies and nurture a self-sufficient market, Chinese enterprises continue to assess the viability of investments in Europe cautiously. They are learning from challenges like those faced by Northvolt and SVOLT Energy, increasingly opting for more risk-averse strategies such as technology licensing and joint ventures, to mitigate geopolitical and market risks.[para. 18][para. 25][para. 89]