Europe’s batteries push promises much-needed relief for investors

They have dubbed it the “Airbus of batteries”. Bruno Le Maire, the French finance minister, joined with his German counterpart in Paris last week to unveil plans for a battery plant to supply electric cars, part of a pan-European project backed by public money.

The first plant, to be built in the Nouvelle-Aquitaine region of south-west France, is a sign that Europe is catching up with China in the battery revolution, which promises to be a mainstay of the future low-carbon economy.

It looks like a sensible bet, given the alternatives. Shipping batteries from China will add to the carbon footprint of electric cars, as will moving raw materials from Africa and Latin America to China, to be processed and then brought back again. Developing a European battery industry should also help reduce some of the job losses that will result from the switch away from the internal combustion engine.

Catching up will not be easy. Over the past five years, Beijing has pumped out billions of dollars of subsidies, built vast battery factories and bought up mines in the Democratic Republic of Congo and Chile. As Maros Sefcovic, European Commission vice-president, put it in June, China is “locking users into new dependencies, and from there aggressively moving up in the value chain.”

But Europe knows it needs to develop its own battery industry and supply chain if its carmakers are to produce enough electric cars to meet stringent new rules limiting CO2 emissions, to be phased in next year. The European Battery Alliance, a public-private initiative established in 2017 by Mr Sefcovic, has targeted as many as 25 battery gigafactories to be built across Europe by 2025.

While the UK is focused on next-generation battery research, Europe has the scale and size to enable large-scale battery production that can be tailored to adjust for changes in technology.

A strong European electric car market would also be a relief for investors in the sector, following falls in share prices for almost all companies involved in the battery supply chain this year — from battery materials producer Umicore, to cobalt miners such as Glencore, and lithium producers such as Albemarle.

With their fortunes tied to China’s market, they were especially hit by Beijing’s decision earlier this year to reduce its generous electric car subsidies. And last month, Glencore announced it would shut down the largest cobalt mine in the world in the Democratic Republic of Congo after a supply surge led to a dramatic drop in prices.

Alastair Bishop, who manages a BlackRock fund investing in transport technology, said that there was a “calm before the storm” in Europe as carmakers plan a major increase in electric car production to meet the target of 95 grammes of CO2 per kilometre by 2021. Carmakers face a €95 fine for every gramme of CO2 that exceeds the target — multiplied by the number of cars sold that year.

Electrifying their fleet is the only way for carmakers to avoid substantial fines, said Mr Bishop. “You’ve seen a lot of the EV launches being pushed back to the end of 2019 so they ramp up into 2020.”

That could have large ramifications for Europe-based companies that produce battery materials or hope to build lithium-ion battery factories. Europe produces almost no lithium, cobalt, nickel or graphite — materials used in batteries — and has little of the processing capacity that is needed to turn these materials into battery cells.

Umicore has started building a plant in Poland, and announced this week it had signed a long-term supply agreement with South Korean battery group LG Chem. In May the company acquired a cobalt refinery in Finland from US copper miner Freeport-McMoran.

“I expect the EV market in Europe will grow fast, because it’s going to continue to be supported by tighter CO2 regulations,” said Marc Grynberg, Umicore’s chief executive. “Because you see little of this today, most observers have a hard time conceiving how big it will be.”

This regulatory push contrasts with the US, where President Donald Trump has sought to relax standards on emissions. Europe’s lithium-ion battery manufacturing capacity will overtake America by 2023, according to Bloomberg New Energy Finance, reaching 198 gigawatt hours, from about 18 GWh today.

Established Chinese companies will seek to benefit from Europe’s shift. CATL has plans to build a battery factory in Germany, while carmaker BYD and SVOLT, a battery company split off from Great Wall Motors, also plan to build plants.

But they will go head-to-head with European start-ups. Northvolt, a Swedish company that raised $1bn from Volkswagen and BMW as well as Goldman Sachs and Ikea, is moving ahead with plans to build Europe’s first lithium-ion factory in Sweden. A host of smaller companies wants to mine for battery materials in Europe.

As the European market expands, global battery supply chains should become more stable as investors and companies become less exposed to decisions taken in Beijing.

That is a path laid out by renewable energy over the past couple of decades: when Europe dominated the market in the early 2000s, volatility in pricing was high. But now that the market is global, producers’ fates are no longer tied to one country or government. Battery investors can hope for a similar path.