Europe’s battery supply chain at a crossroads in terms of challenges, opportunities

Numerous automakers in Europe have already cut, or plan to cut, jobs, and many have closed or plan to close vehicle-producing factories. Swedish battery producer Northvolt recently filed for Chapter 11 bankruptcy protection in the US, and Portuguese energy firm Galp has reversed plans to move forward with its Aurora lithium project in Portugal.

For others though, the bearish sentiment, slowing EV demand growth and low lithium prices represents an opportunity for Europe to rationalize its approach to batteries and EVs.

By revisiting subsidy and incentive programmes that support scaling of the entire value chain, and by leveraging technology/skills transfer and industrial partnerships with leading nations, Europe can refine its strategies to create a robust battery supply chain, according to Fastmarkets’ head of battery raw materials analytics, Paul Lusty.

Building the supply chain in Europe

With rising demand for electric vehicles (EVs) and renewable energy storage, Europe has made efforts to build its own supply chain for battery production, but the continent has long been dependent on global suppliers – particularly those in Asia – for key battery components.

To counter this reliance and establish a robust, self-sufficient battery supply chain, the EU has rolled out a series of strategic legislative and investment initiatives aimed at stimulating domestic growth and innovation.

Central to this effort was the European Green Deal, which underscores the critical role of batteries in achieving climate neutrality by 2050. And the EU has introduced the Battery Regulation – a legal framework focusing on sustainability, recycling, and ethical sourcing of raw materials.

Recognizing the need for upstream investments, the EU has classified batteries as a Strategic Value Chain under its Important Projects of Common European Interest (IPCEI) program.

This designation allows member states to channel public funds into research, development, and industrial projects without breaching EU state aid rules.

Additionally, the EU has created the European Battery Alliance (EBA), a public-private partnership designed to stimulate collaboration between governments, industry leaders and research institutions.

The EU is also imposing new emissions regulations that increase the price of internal combustion engine (ICE) vehicles in 2025 to further incentivise EV demand.

Through these measures, Europe has laid the groundwork for a supply chain that spans raw materials extraction, refining, cell manufacturing and recycling.

However, the path to independence has been fraught with challenges, including securing the raw materials, scaling up production capacity and competing with established businesses from around the world.

And the slowdown in EV demand growth, coupled with a prolonged period of low lithium salts prices, has led to a series of bearish announcements from companies within the supply chain – from carmakers cutting staff and closing factories to battery producers filing for bankruptcy.

Reactions to the slowdown in EV demand

While the market has been gloomy about EV demand growth, Fastmarkets researchers expect year-on-year growth in 2024 to be around 29%. But while growth has been relatively strong, it has still been lower than expected, which contributed to the revision of operations by a number of automakers and battery supply chain companies in Europe.

Northvolt, for instance, which makes battery cells for EV batteries, filed for Chapter 11 bankruptcy protection last week related to the expansion of its.Northvolt Ett gigafactory at Skellefteå in northeast Sweden. The company said operations there would continue during the process, including “fulfilling obligations to critical vendors and payment of wages to employees.”

The company said it aims to complete a restructuring process during the first quarter of 2025.

And Portuguese energy company Galp said it will not proceed with the construction of its Aurora lithium project in Portugal, following the news of Northvolt filing for Chapter 11. Northvolt decided to stop investing in Aurora in early 2024, Galp said.

Aurora, an equal joint venture between the two companies, was set up to develop Europe’s largest lithium conversion plant, with an annual production capacity of up to 35,000 tonnes of battery grade lithium hydroxide. It was hailed by Northvolt as a stepping-stone for developing an integrated lithium-battery value chain when the partnership was announced in 2021.

Car manufacturing giant Volkswagen has said it is aiming to close at least three factories in Germany, cut tens of thousands of jobs and downsize all remaining plants, according to the company’s works council. The company reported deliveries of EVs were down by 4.7% year on year in January-September, which it attributed to “industry-wide buyer reluctance” to buy EVs.

“The biggest hurdle that we face in terms of EV demand growth in Europe – taking Germany as an example, after the government there axed EV subsidies – is affordability,” one market participant told Fastmarkets.

Germany’s government ended subsidies for EVs in December 2023 after revising its budget.

And leading US auto manufacturer, the Ford Motor Co, said in late November that it will reduce its European workforce by 4,000 positions by the end of 2027 – primarily in Germany and the UK.

“The global auto industry continues to be in a period of disruption, especially in Europe, where the industry faces unprecedented competitive, regulatory, and economic headwinds,” Ford said.

Falling battery raw material (BRM) prices

Lithium prices have been in steep decline throughout most of 2024, which has cut producer and refiner profit margins significantly and slowed the uptake of new projects in Europe.

Prices for battery-grade lithium hydroxide recently fell to their lowest level – on a midpoint basis – since Fastmarkets began assessing the market in 2017.

Fastmarkets’ price assessment for lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea was $8-9 per kg on November 12, but has since rallied to $8.50-10.00 per kg on Monday December 3.

The lithium hydroxide price has fallen by more than 40% since the beginning of 2024 when it stood at $14.50-16.50 per kg.

Cobalt prices have also dipped, but not as rapidly as lithium, falling by around 18% since the start of the year.

And Fastmarkets’ price assessment for cobalt standard grade, in-whs Rotterdam, was $10.10-12.00 per lb on Tuesday December 3, down from $12.80-14.18 per lb at the beginning of the year.

Europe’s faltering supply chain

Reactions to automaker cutbacks and Northvolt filing for bankruptcy, as well as slowing EV demand growth amid falling BRM prices mainly point towards the view that Europe can still achieve its goal of an independent supply chain, but not without changes to its approach.

“I think it’s quite clear that we’re in a down-cycle across the batteries sector in the West,” one consumer told Fastmarkets. “The period of rapid initial growth dictated decision making around start-up strategies, investments, etc, and I think this is a correction of that.

“While there will be struggles ahead, I see this as a time to rationalize Europe’s approach to batteries and EVs. We see political pushback from the public and OEMs alike, although I don’t believe this will stop the train. A European battery sector can and will work with more refined strategies. If politicians want less dependence on China, then they will need to better facilitate this to get past the early adoption point on the curve,” the consumer added.

One producer said Northvolt filing for Chapter 11 protection was “more bad news that puts additional pressure on lithium hydroxide prices, because there is another player or customer in that market for battery-grade products that might completely disappear.

“But on the supply chain side, it’s a disaster for Europe that there is apparently not enough downstream demand from battery production to allow [cathode active material] (CAM) producers in Europe to be successful. [The question is,] how long will it take for that demand to pick up?” 

“From what we’ve seen on the demand side for batteries in Europe, it’s a consequence that those companies cannot survive here. We will probably need either demand to pick up or regulation that states we need European production for European cars. As long as that’s not the case [it will] always be more competitive to source those materials – up to and including batteries – from Asia,” the producer added.

Some sources criticized the EU for its lack of incentivisation.

“[Northvolt] shows cobalt has less of a future than we all thought for batteries – it’s proof of poor demand,” a trader said.

“The EU has too much bureaucracy and regulation and, as always, was busy encouraging the supply chain with one hand while cutting its legs off with the other,” the trader added.

And a consumer told Fastmarkets: “A lot of lessons have been learned and reality checks have been handed out. But infrastructure for day-to-day EV use is improving and costs are falling, so adoption will grow and the need for a domestic industry will be there.

“Pragmatic growth, with political willpower, will provide a future for European industry,” the consumer added.

Challenging growth landscape

Fastmarkets researchers forecast that European lithium carbonate equivalent (LCE) production will grow at a compound annual growth rate (CAGR) of 51% between 2024 and 2034, but the landscape for growth is challenging.

“We remain concerned that, in the current price environment, companies developing projects in Europe will struggle to access financing and advance project development,” Lusty said.

“Project development costs in Europe are relatively high, so it will struggle to compete on a cost basis with established centers of lithium production and opposition to mining projects is an ongoing challenge for the region,” he added.

Opportunities for Europe – collaboration

“Europe needs a local or regional supply chain because relying on one that is controlled by China is too big a risk, given the potential for escalation in geopolitical tensions,” according to Fastmarkets’ head of base metals and battery research, Will Adams.

“But it’s proving very hard to build, for numerous reasons – technical know-how, high capital expenditure and operating expenditure costs, low BRM prices and insufficient government support.

“One way or another, Europe’s lithium-ion battery chain will need significant government support or partnerships with those who already have the know-how and those who can bring in the finance,” Adams added.

Muthu Krishna, Fastmarkets battery manufacturing cost modeller said a collaborative approach would provide a viable route to a European supply chain.

“Yes, there is risk of relying on imports from China, but [focusing on] collaboration over competition, which allows for knowledge transfer to European partners while giving access to the European markets for the big Asian players, would be a win-win scenario,” Krishna said.

“As material supplies slip into deficit, which we forecast will occur during 2025, prices will rise. But these rises must now stabilize at a level that allows downstream OEM profitability (such as, not making battery packs too expensive) while at the same time enabling upstream players to make a profit and expand supply to meet demand,” Krishna added.

And Lusty said: “Europe has been focused on improving its supply chain resilience and the security of supplies of raw materials for years, but this appears to have done little to shelter it from the structural vulnerabilities of global supply chains and the complexity of energy transition markets or to improve its cost competitiveness.

“Policy levers will only it take it so far. A rapid pivoting of strategy is required, involving coordinated and sustained subsidy and incentive programmes that synchronously support the scaling of the entire value chain, plus technology/skills transfer and industrial partnerships with leading nations,” he added.

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