Why Europe needs a battery industry
Batteries, and especially lithium-ion products, rank among the most critical technology in the energy world today. Lithium-ion batteries are essential for powering electric vehicles (EVs), stabilizing renewable-energy-powered grids, providing backup power for businesses and homes, and maximizing solar generation in buildings.
The global market for lithium-ion batteries is booming, with demand having tripled since 2021. The battery supply chain is predominantly concentrated in Asia, with Europe way behind in terms of production capability and expertise. To make matters worse, the recent bankruptcy filing of Swedish lithium-ion manufacturer Northvolt has raised serious questions about Europe’s ability to compete in this critical technological arena.
Decade of drift
The crazy thing is that, a decade ago, Europe had both technological knowhow and some lithium-ion production capacity. The lack of a coordinated approach and support from European governments and businesses meant that those businesses struggled. China has gone from having around 15% market share a decade ago, to being the home of industry giants CATL and BYD and now controlling approximately 80% of global battery production. China’s dominance extends from raw material refining and processing to advanced battery manufacturing equipment technology.
That geographic concentration poses severe risks for Europe, particularly for its automotive industry, which has become dangerously dependent on Asian producers for batteries and increasingly reliant on Asian technological knowhow for EV manufacturing. Rising geopolitical tensions are further exacerbating Europe’s vulnerability to potential supply disruptions. As a result, establishing local battery production capabilities has now become essential to mitigating that risk.
Europe needs a strategic response focused on building a robust domestic battery manufacturing ecosystem. The continent must first acknowledge and learn from Northvolt’s mistakes. The Swedish manufacturer’s struggles underscore the complexity of battery manufacturing, which requires deep expertise in chemistry, large-scale production experience, and sophisticated equipment manufacturing capabilities – areas where Japanese, Chinese, and South Korean firms have long-established dominance. As a result, collaboration with leading Asian industry players is imperative for Europe’s success.
In parallel, Europe must adopt an Airbus-type approach to battery manufacturing, coordinating efforts centrally, at the continental level, rather than overseeing fragmented national or corporate initiatives. Just as aerospace company Airbus successfully pooled human resources, intellectual property, research capability, and industrial capacity to challenge its dominant US-based rival, Boeing, Europe must now replicate that model with batteries. It is the only way to scale quickly and cost-effectively.
Aggressive investment
Scaling European lithium-ion production to a globally competitive level also requires effective regulatory frameworks and strategic policy incentives. Clear, supportive policies across Europe can accelerate growth significantly, attracting investment by simplifying production plant establishment processes, ensuring stable and predictable energy costs, and providing targeted financial incentives.
Europe must also address competitiveness directly. Battery cell production costs in Europe can exceed those in China by up to 25%, primarily due to higher labor and energy costs. Narrowing that gap requires aggressive investment in automation and digitalization, leveraging Europe’s strong industrial base and technological expertise. Moreover, creative strategies for reducing energy costs must be actively explored and implemented.
Fostering innovation is crucial for Europe’s future competitive positioning. Significant global research and development is ongoing in battery technology, including contributions from European universities and research institutes. Europe must enhance efforts to commercialize that research and integrate more deeply into global research networks. That could position Europe at the forefront of innovation, thereby strengthening its industrial and technological foundations.
About the author:
Gerard Reid is a co-founder and partner of Alexa Capital. He has spent more than 20 years working in investment banking, equity research, fund management, and corporate finance, with a focus on the energy transition and digitalization. He was previously managing director and head of European cleantech research at Jefferies & Co. To find out more about capital market opportunities in energy storage, see Alexa Capital’s “Investing in the Energy Storage Revolution” report.
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