Since the automobile was invented in Europe 136 years ago, the industry has grown to become one of the foundations of the continent’s economic growth and prosperity.
But as China imposes greater control over the supply chain for electric vehicles, Europe’s auto sector faces one of its biggest challenges in its history as it tries to catch up.
And it won’t just mean creating battery factories, says Emma Nehrenheim, head of sustainability at the company Northvolt, the most advanced starter battery in Europe. It will include the entire ecosystem of mining, refining and chemical engineering required to supply them. “Whoever owns the processing capacity will be the one who controls and trades where the material comes from,” he says.
The EU has big ambitions for electric cars, the aim of which is to gradually end the sale of new cars with petrol and diesel engines by 2035. This month, the bloc’s leaders said they were planning critical raw materials legislation to fund strategic projects and build stockpiles.
However, China’s lead in the production of batteries for electric cars is significant. It is expected to produce 76 percent of global lithium-ion battery cells this year, compared with 7 percent in the EU, according to Benchmark Mineral Intelligence.
“There’s a lot of catching up to do,” notes Francis Wedin, CEO of Vulcan Energy, which hopes to produce lithium, a key material for batteries, in Germany. “China has been several chess moves ahead for some time.
The Vulcan – in which Stellantis, the carmaker formed by the merger of Jeep owner Fiat Chrysler and Peugeot owner PSA, has invested 50 million euros – illustrates this challenge. Lithium is mined from hard rock in Australia and processed in China or slowly evaporated from brine in Chile. Vulcan wants to start producing lithium in Germany from 2025 with a new, unproven technology that pumps brine and extracts lithium directly using geothermal energy.
But under siege skyrocketing energy bills and rising borrowing costs, executives in Europe’s battery and raw materials industry fear the continent will become dependent on Asian companies, including China’s CATL, South Korea’s LG Chem and Japan’s Panasonic.
Roland Getreide, head of Luxembourg-based Livista Energy, which is seeking to build lithium refineries in the UK and continental Europe, says preparing the supply chain for the surge in demand for electric vehicles is at the forefront of the industry’s challenges. Europe is trying to “compete with people who are 20 years ahead in cash flow”, he says.
Even as Europe draws investment in battery manufacturing, executives see a stark difference between Asian battery makers setting up “satellite” factories in Europe supplied from Asia, and a local European player sourcing and supporting a local supply chain. Last month CATL made a mammoth announcement investment of 7 billion dollars at the gigafactory for the production of batteries in Hungary.
“Battery manufacturers from Asia who have set up in Europe would bring their materials in a work-in-progress or finished form,” says Mark Thompson, CEO of Australian advanced materials company Talga. In Sweden, he is developing a project to mine and process graphite, which is vital for battery anodes.
Europe has almost no lithium and graphite operations. It is home to only one of 15 global producers of battery-grade manganese sulfate and accounts for only 9 percent of the global supply of cobalt chemicals, says critical minerals consultancy Project Blue.
European battery makers would have to import materials from abroad for some time, as mining projects take much longer to develop than battery factories. “In the early days, you can’t avoid bringing in materials,” says Thompson.
The European automotive sector also faces challenges in creating a supply chain for electric motors, the second most valuable part of an EV. These need highly specialized permanent magnets to be used rare earths, a collection of 17 elements that are extremely difficult to extract and process. China dominates the production and processing of rare earths with an estimated 80% share of the global market.
Only one company in the European supply chain – Canada’s Neo Performance Materials – is currently capable of separating rare earth materials for use in magnets. It has exploration rights for a rare earth mine in Greenland, an autonomous country within the Kingdom of Denmark.
Hastings Technology Metals, an Australian rare earth miner, recently agreed to take a 22 percent stake in Neo Performance. However, the deal is funded by an A$150 million investment in Hastings from a group linked to it Andrew Forrestone of Australia’s richest men – further evidence that the future of the European car industry is entangled in a wider geopolitical and geological web.
Constantine Karayannopoulos, managing director of Neo Performance Materials, suggests that Europe is only just recognizing the key to China’s dominance. “What’s missing from the story is that China is the biggest producer of rare earths because it’s the biggest consumer of rare earths,” he says. “The magnet industry drives the rare earth industry.” Neo aims to produce magnets in Estonia from 2024 to consume its separated rare earths. GKN in the UK is also researching building magnets for electric cars.
Blue Project founder Nils Backeberg says China continues to assert its dominance. Last month, it raised its annual rare-earth mining quota, which Beijing uses to control prices, by 25 percent to a record high: “It underlined again that China holds all the cards.”