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Europe’s energy crisis and the lure of US incentives are complicating Germany’s efforts to build a leading electric vehicle supply chain.
Northvolt said this week it was considering delaying plans to build a battery factory in Europe’s biggest economy because of high energy prices. The Swedish company will decide next year between building a plant in Heide in northern Germany in time to start production in late 2025 or expanding first in North America, where US President Joe Biden is courting cell makers with billions of dollars in incentives.
“Given what’s happening in North America and what’s happening in Europe,” Northvolt will “decide what to prioritize,” said Jesper Wieghardt, a company spokesman. A decision in favor of North America could “delay a bit” the German factory.
A potential shutdown of the Heide plant — which will eventually produce enough cells for roughly a million EVs a year — would be a serious step for Volkswagen and BMW, both of which have invested in Notvolt and placed multibillion-dollar orders. It also follows reports that Tesla is delaying battery production efforts at its factory outside Berlin.
Retooling the German auto industry to preserve manufacturing jobs is among Chancellor Olaf Scholz’s top priorities. But the country’s modernization push has been complicated by the war in Ukraine, which has forced Berlin to abandon its reliance on cheap Russian natural gas. Wholesale fuel and electricity prices have risen, and that’s bad news for the energy-intensive battery industry. Producing 1 kilowatt-hour of EV battery capacity requires 41 kilowatt-hours of gas and electricity, according to Berills Strategy Advisors.
Europe has had gas supplies over the past few months, but supplies could dwindle in the event of a prolonged cold spell. Manufacturers in Germany see little chance of saving more gas without slowing or stalling output, according to research published last week by the Ifo Institute. While Qatar this week agreed to supply Germany with LNG for at least 15 years, deliveries will not begin until 2026.
“If we fail to quickly and reliably reduce energy prices in Germany and Europe, investments in energy-intensive production or new battery cell factories in Germany and the EU will be practically unfeasible,” wrote Thomas Schaefer, CEO of the VW brand. this week on LinkedIn. “Value creation in this area will happen elsewhere.”
Elsewhere, Schaefer is probably referring to the US. The country saw a surge in investment in response to the Inflation Reduction Act, which aims to boost domestic production of electric vehicles and batteries and reduce reliance on China for components and materials. Tax credits for the assembly of battery cells and packs in the US are so generous that they could make America “the global hub for EV batteries,” UBS analysts said in a September note. “Cell production in the US could be more profitable than in any other country.”
Germany is unlikely to miss out entirely. China’s CATL, the world’s largest maker of EV batteries, is on track to start production at its first European cell factory in Erfurt, central Germany, by the end of this year, a spokesman said this week. It is planned that the facility will start with 8 gigawatt-hours of annual capacity and expand to 14 gigawatt-hours during the year. Northvolt said its factory will eventually produce 60 gigawatt-hours of cells per year.
Still, industry officials are urging German and European politicians to step up aid or risk stalling the industry’s transformation. German company Varta said last month it would not finish building a new battery factory until it secured binding orders, citing problems including rising energy and raw material costs. Chinese company Svolt Energy Technology, which plans to build three cell factories in Germany, said this week that it will “monitor economic developments” in the US due to new incentives there.
“The IRA has changed the dynamic for suppliers. “The whole value chain is looking at North America instead of Europe,” said Wigard of Northvolt. “European politicians at various levels must act quickly to ensure that Europe remains attractive for investment.”
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