EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Recent Searches
Press release
30 May 2023
Europe can benefit from the battery crisis and Romania has the chance to become an important partner in pan-European
The electrification imperative is expected to create a global opportunity of ~5TWh (terawatt-hours) by 2030 for battery demand in mobility and static energy storage. Electric vehicle (EV) adoption is a key part of this trend, with passenger vehicles expected to account for around 85% of the market by then. As a result, automakers and battery manufacturers are racing to create the capacity needed to meet this future market demand.
The critical shortage of key materials by the mid-2020s risks leaving European original equipment manufacturers (OEMs) to rely on Asian supply chains, which generally emit more carbon due to lower regulatory pressure and inefficient long-distance transport of materials. In this scenario, Europe will not be able to control the pace of the transition to a sustainable materials value chain, thus missing an opportunity to take a technological leadership position in a growing industry in the future. Mining potential would be under-utilised, original equipment manufacturers would remain exposed to material price volatility, and customers would be reluctant to pass on costs to them. Developing materials processing capacity in Europe would provide a clear incentive for local project development, helping Europe to secure the entire battery value chain.
NMC is expected to be dominant for many European-based OEMs during this decade. The critical materials that make up this cathode are largely refined in China, despite the lack of significant domestic supplies of these critical materials in this country.
As a result, there is expected to be a significant gap between cathode active material (CAM) production capacity and battery production in Europe if the rules of origin (RoO) are met by all original equipment and battery manufacturers. From 2027, to qualify for free trade in the EU, 65% of the battery cells in EVs must contain EU or UK originating materials. The latest project estimates and announcements suggest that European CAM production capacity in 2030 will be around 661 GWh-equivalent, leaving a significant gap of 214 GWh (24%) between CAM supply in Europe and the expected capacity for battery component production. The challenge is not only to meet production requirements, but also to perfect a strong CAM technology in Europe to differentiate it from Asia, focusing on high performance needs.
For now, the scope of the European Carbon Border Adjustment Mechanism (CBAM) does not cover battery materials, so the environmental benefits of localizing supply have not convinced prospective players in Europe that the capex and opex of running an AAM facility have been worth their while. However, if the scope of the European CBAM expands to include battery materials in the future, this could influence the economics of a European-based manufacturing facility. The same can be said of CAM facilities too, despite being less energy intensive.
The midstream for battery materials poses a critical challenge for European battery production. Romania, with the backing of EU financing programs like the Modernization and Innovation funds, has a promising opportunity to strengthen its battery economy by cofounding a pan-European multi-disciplinary alliance across the battery value chain. By addressing this bottleneck, Romania can play a pivotal role in advancing the battery industry and securing a sustainable future for the country
Mihai Drăghici
Partner | Consulting
To be successful, a European alliance that spans the entire process must create a differentiated proposition that meets the needs of a European battery and automotive market. This will require addressing the six challenges below:
1. Convening public and private sector capital
The success of the European midstream will require the right public incentives mechanism to be in place to encourage investment and overcome structural operating cost disadvantages, as well as the ability to raise private sector capital through external investors.
Currently, these are primarily large-scale capital projects which have an upstream commodity risk, commodity pricing revenue profile and uncertainty from offtake demand Both private and public investors must understand the risks across the value chain and actively mitigate them.
2. Ensuring an ESG focus
The creation of a sustainable, transparent, and low end-to-end lifecycle greenhouse gas (GHG) footprint is the only way to ensure batteries are sustainable from mine to wheel.
This will add complexity to the midstream build-out; however, proposals such as the European battery passport will be useful to help drive full value chain transparency and while developing sub-industries in their own right, such as standards development and assurance.
3. Aligning technology roadmap
Ensure alignment across the alliance, such as a roadmap to solid-state batteries, focusing on smaller packs and faster charging, with different modular designs.
4. Creating a leading recycling hub to drive circularity
Integrating recycling with the midstream creates an opportunity to enhance the sustainability and develop a competitive advantage against higher emissive regions; there is also a similarity of capabilities (such as hydrometallurgical processing), and the midstream is where physical flows of scrap and off-spec material are abundant.
The challenge here is to support the development and integration of two capital-intensive sub-industries in parallel, reinforcing points 1 and 3.
5. Engendering a strong enabling environment
Policies and incentives that support infrastructure development, cover equipment and raw materials, import regimes, tax breaks and affordable finance are all crucial means to incentivise the right spend (and buying) behaviours in the midstream. The newly announced European Critical Raw Materials Act (CRMA), when implemented, would be a strong first step in the right direction.
However, large questions on public financing remain. Governments may need to make difficult budgetary trade-offs as they start to withdraw customer incentives to drive take-up of EVs.
6. Fulfilling regional mining potential
Exploring regional mining potential and alternative conversion technologies to unlock local reserves can ease the strategic deficit that Europe faces regarding access to raw materials.
To date, Europe has had a strategic disadvantage relative to other regions regarding access to raw materials. Permitting laws and the financial cost and uncertainty relating to exploration have disincentivized investment. However, action on permitting and incentives could encourage investment and recover potential local reserves in countries such as Portugal, Serbia and Germany.
Related news
