In Depth: For Chinese Battery-Makers, Europe Is Losing Its Spark

Chinese battery maker SVOLT Energy Technology Co. Ltd. has decided to close its German office and halt the construction of two battery factories in Germany, ending its European business operations as early as next year. This shift is attributed to disappointing market expectations and financial pressures [para. 1][para. 2][para. 3]. SVOLT plans to focus instead on pursuing sustainable long-term business opportunities in Europe by altering its approach to the market. The closure is also a consequence of broader operational difficulties in China, a problem faced by several Chinese battery companies [para. 4][para. 5].

The European market remains attractive due to increasing electric vehicle (EV) sales and regulatory changes, such as the European Union’s upcoming ban on new combustion engine cars starting in 2035, predicted to elevate demand for EVs [para. 6]. In the first half of 2024, overseas sales composed a significant 30.3% of CATL's revenue, alongside significant investments totaling over 15 billion euros by Chinese battery-makers in European facilities [para. 7][para. 8].

Despite this potential, SVOLT’s setback reflects larger challenges for Chinese battery-makers in Europe, as a recent decline in EV sales has impacted revenue. Some firms are now looking to license technology to European partners, offering an asset-light market entry strategy [para. 10][para. 11]. SVOLT’s European challenges coincide with an extensive restructuring within the company due to domestic market overcapacity and a fierce price war, exacerbated by its failure to achieve a public listing [para. 12][para. 13]. This financial strain is evident as SVOLT's cash flow remains tight, hindering further European expansion requiring at least 30 billion yuan [para. 16].

SVOLT's struggles were compounded by an unsuccessful partnership with Stellantis NV, following Stellantis’s formation from a merger involving PSA Group, highlighting external factors in the company’s difficulties. Changes in market conditions and partnerships reportedly sealed the fate of SVOLT's German projects [para. 19][para. 20]. Despite setbacks, some Chinese battery makers, like CATL, remain committed to Europe, though they are proceeding with caution given the significant risks and high investment costs [para. 22][para. 23].

The European EV market's sluggish growth, with a drop of 4.9% in battery-electric car registrations and a 26.6% decline in Germany, complicates projections for battery demand [para. 24][para. 25]. Policy shifts, including the EU’s revised petrol and diesel car ban allowing e-fuels, add further uncertainty [para. 26]. As a leading Chinese manufacturer in Europe, CATL provides a precedent for other companies seeking profitability [para. 27].

Amidst financial challenges and trade tensions between the EU and China, battery firms are increasingly looking to licensing as a revenue strategy in Europe. Joint ventures and technology licensing agreements with local enterprises are seen as a way to develop European battery capacity with fewer restrictions [para. 38]. CATL is already pursuing this approach with a licensing deal established with Ford Motor Co. for a U.S. joint factory [para. 40][para. 41]. Licensing offers Chinese firms a safer revenue path that doesn’t require heavy physical investment, crucial as geopolitical risks have heightened awareness about asset security [para. 44].

However, issues like China’s patent protection limitations complicate technology pricing, indicating only top companies might successfully execute this strategy in Europe [para. 48][para. 49].