Aerial view of the lithium mine of Silver Peak, Nevada, California, USA

How Europe can unblock the midstream battery materials bottleneck

To enable the development of a local and sustainable battery economy, Europe needs to address a gap in its midstream battery materials capacity.

In brief

  • The midstream for battery materials represents a bottleneck for European battery production.
  • National governments in Asia and North America are imposing protectionist measures to secure raw materials and achieve self-sufficiency.
  • A pan-European multi-disciplinary alliance across the battery value chain may be the answer.

Battery midstream production runs from the moment ore and minerals have been extracted from the ground, to the start of the battery production process. Midstream production has primarily been driven in Asia-Pacific with industries in the West focusing mostly on automotive and downstream battery manufacturing markets. This creates potential challenges and bottlenecks for European manufacturers in procuring materials for cell production.

Illustrative battery cell value chain
Battery materials flow diagram

When assessing the bill of materials, some components simply matter more than others given their significant variations in value. For a nickel-manganese-cobalt (NMC) cell, the cathode can represent up to approximately 60% of its value, whereas the anode represents between 10% and 15% of its value. Therefore, securing local capacity for the manufacture of these electrodes, along with the refining and potentially extraction of raw materials to make them, are crucial to ensure Europe can capture the benefits of a majority of the battery cell value.

Split of battery value by component (%)


Chapter 1

The case for a European midstream capability

A gap in the European battery midstream is a hurdle to building a sustainable, domestic value chain.

The electrification imperative is forecast to create a ~5TWh (terawatt-hours) global opportunity by 2030¹ for battery demand across the mobility and static energy storage landscape. The adoption of electric vehicles (EVs) is a cornerstone of this trend, with passenger vehicles expected to comprise around 85%² of the market by then. As a result, automakers and battery-makers are racing to create the capacity required to meet this future market demand. 

Critical shortages of key materials by the mid-2020s risk leaving downstream European OEMs (original equipment manufacturers) reliant on Asian supply chains, which generally emit more carbon due to lower regulatory pressure and inefficient long-distance shipping of materials. In this scenario, Europe will be unable to control the pace of transition to a sustainable materials value chain, missing an opportunity to take technology leadership in a future growth industry. Mining potential would go underutilized, OEMs would be left exposed to material price volatility and customers would be resistant to costs being passed down to them. Developing materials processing capacity in Europe would provide a clear incentive for the development of local upstream projects, helping Europe secure the entire battery value chain. 

NMC is expected to be the dominant cathode chemistry for many Europe-based OEMs through this decade. The critical materials that comprise this cathode are overwhelmingly refined in China, despite the country’s lack of significant native supplies of all critical materials.

Cathode active material and relevant mineral processing by region

Consequently, there is expected to be a significant gap between cathode active material (CAM) production capacity and battery production in Europe if rules of origin (RoO) are complied with by all OEMs and battery producers. From 2027, to qualify for free trade in the EU, 65% of the battery cells in EVs must contain EU or UK originating materials.³ Latest pipeline estimates and announcements suggest European CAM capacity in 2030 will be approximately 661 GWh-equivalent, leaving a significant gap of 214 GWh (24%) between CAM supply in Europe and the forecast capacity for battery cell production. The challenge is not just to meet capacity requirements but to hone strong CAM technology in Europe to set it apart from Asia by focusing on high performance needs.

European capacity for cathode active material vs. Li-ion battery production, 2022-2030

An assessment of the anode tells a similar story. Today, China refines nearly 100% of graphite globally, a critical component for the anode. Most nodes use a blend of synthetic graphite (made from needle coke) and natural graphite (made from graphite flake mining). Synthetic graphite is a higher cost option, but studies have indicated it creates a higher performance output and is better suited to the development of a solid-state battery. 

Given product roadmap plans for solid-state batteries, failing to localize anode active material (AAM) technology could present challenges for Europe in accessing or developing next-generation technologies. Today, China imports 85% of its needle coke from the US and UK. The challenge for Europe to date in AAM production has been the energy-intensive process of producing anode-grade graphite, driving location decisions on lower energy costs outside Europe. 

Additionally, the environmental impact of AAM production must be considered. Synthetic graphite in particular releases harmful NOx and SOx emissions during its extremely energy-intensive  processing. 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 European CBAM scope expands to include battery materials in the future, this could swing the economics of having a Europe-based production facility. The same can be said of CAM facilities too, despite being less energy intensive.


Chapter 2

Incentives as a key driver to midstream success

How incentives are being used in Asia and the Americas to concentrate upstream and midstream assets

Examples of major battery material trade flows
battery materials extraction refining

Asian investments in the battery value chain


China, and to a lesser extent, South Korea, dominate material trade flows today with significant infrastructure and capacity in controlling market dynamics and pricing.


Between 2009 and 2013, the Chinese government began providing subsidies to promote the growth of the EV sector, having identified EV manufacturing and lithium-ion battery production as strategically important sectors to the broader economy. The government offered cheap land for factories and significant capex subsidies to build plants. They offered tax breaks and subsidies worth up to one third of the cost of the EV, on the proviso that automotive OEMs used batteries from a list of approved battery suppliers, including entities such as CATL (Contemporary Amperex Technology Co. Limited) This initial support provided CATL with the platform to corner the market, particularly the LFP (lithium iron phosphate) cell market.


From a basis of scale, and an ability to deploy the cash flow generated from cell production, CATL has embarked upon a series of value chain investments that have allowed it to secure supply and move into the midstream. Some examples of their investments include:


  • Building a plant processing nickel laterite ore in Indonesia which starts production in 2024
  • Acquiring Pilbara Minerals, which plans to expand the Pilgangoora Lithium-Tantalum Project and processing facility to produce lithium hydroxide in South Korea
  • Purchasing stakes in mining projects in the South American Lithium Triangle and in cobalt mines in the Democratic Republic of the Congo

US targets cleaner EV batteries through legislation


In August 2022, US President Joe Biden signed the Inflation Reduction Act (IRA) into law, containing incentives designed to develop a local supply chain targeted at encouraging domestic production and sourcing. To incentivize demand, the law provides tax credits based on the MSRP limits. From 2024, US vehicles cannot have any battery components sourced from a “foreign entity of concern”, and from 2025, EV batteries cannot have any critical minerals sourced from a “foreign entity of concern”.


Through this legislation, the US is localizing production within the area covered by its North and South American free trade agreements, which includes agreements with commodity-rich countries such as Chile. The US is aided by a slower adoption of EVs than Europe.


The US Department of Energy (DOE) has awarded $2.8b to around 20 companies across 12 states operating in its domestic battery supply chain through the US Bipartisan Infrastructure Law. This has driven $1.5b to be allocated toward materials separation and processing, and $1.3b allocated toward component manufacturing. Of the $2.8b, 30% has been allocated to anode investments and 25% to PCAM & CAM, covering NMC and LFP technologies.

Funding the future
The grant amount awarded by the US DOE to develop a domestic battery midstream value chain

These funding mechanisms represent a significant step toward securing a domestic battery industry in the US, as they support new and commercial scale facilities, in addition to demonstration plants.

With Asian midstream capacity effectively shut out of the US market, investment is more likely to be targeted at Europe. Given Europe’s faster pace of EV adoption and lack of effective midstream capacity, OEMs are more likely to be receptive to Asian supply and investment to meet their electrification production targets without the European Commission passing comparable legislation.

The European Union has made several steps to respond to the IRA. In February 2023, it announced the Green Deal Industrial Plan. This includes a subsidy package consisting of €225b in loans and €20b in grants for renewable energy and decarbonization, drawing from the EU’s existing post-pandemic recovery fund. However, there is no specific amount earmarked for the battery value chain.

The European Critical Raw Materials Act (CRMA) released in March 2023 set out more comprehensive measures within the upstream and midstream, with ambitious targets for regional processing, a central raw materials buying agency, and accelerated permitting to less than 2 years for projects deemed strategic.


Chapter 3

Europe faces some fundamental challenges, but there are opportunities to capture.

How incentives are being used in Asia and the Americas to concentrate upstream and midstream assets

Compared to Asia and soon, North America, the midstream represents a material bottleneck for European supply into battery producers and automotive OEMs, and risks becoming a market-defining hurdle.

While EU IPCEI (Important Projects of Common European Interest) legislation has been effective in deploying $6b to support Gigaplant development, the public-private response to the midstream challenge has been more limited. European regulation has been focused on building the enforcement mechanisms and data platforms through the requirement of battery passports rather than aggressive immediate targets for local production.

Capital deployment at coordinated scale has also been limited, with potential investors detracted by challenging infrastructure economics, cost competitiveness and technology obsolescence risks. Europe faces some fundamental challenges with few native supplies of battery raw materials, substantially more expensive energy costs and significant capital investment requirements to develop the required chemical processing capabilities.


Furthermore, Europe demands a differentiated approach to battery materials sourcing, with transparency, localization and sustainability at its heart. This approach is driven by regulations such as the CBAM, tariffs incurred on a fully manufactured vehicle that does not meet locally sourced value requirements, and OEM net-zero targets.


Compared to Asia, European capacity remains limited across the material supply chain, despite steps taken by BASF, which is developing a PCAM facility in Finland and CAM facility in Germany and Umicore, which inaugurated a greenfield plant in Poland in late 2022.


Elements of the material supply chain carry significantly greater risk and therefore should be prioritized for localization sooner due to value, forecasted capacity gap and high rules of origin (RoO) imperatives. Specifically, CAM supply shortages and challenges will be a critical bottleneck across both LFP and NMC chemistries.


There may be opportunity to commercialize newly discovered commodity reserves (such as British Lithium in the UK) through domestic or regional midstream developments in lithium. However, it’s too early to tell whether these deposits are extensive enough or commercially viable to attract localized midstream processing and refinement.


With a targeted focus on where to incentivize and invest, Europe can play a leading role in driving forward technology innovation and leadership to alleviate some of the capacity challenges. This represents a significant opportunity and manifests in two main areas:

  1. Focusing on recycling technologies, such as hydrometallurgical processes, that keep high spec materials in a circular European loop and offset the need to go back to the refining process.
  2. Developing conversion technology to enable commercialisation of a broader mineral base, including direct lithium extraction and extraction from geothermal brines.


While targeting investment toward high-value areas of the material supply chain, especially toward extracting and refining materials agnostic of chemistry mix, Europe may try to lead in technology advancements that will enable it to offset some of its strategic challenges.


Chapter 4

Options for players entering the midstream

Players can build, buy or partner to vertically integrate in the battery value chain.

A “do-nothing” approach, which just continues to focus on downstream battery development, leads to constrained access to critical materials supply and price volatility, resulting in stranded or under-utilized cell manufacturing assets. This in-turn impacts the overall performance of European automotive OEMs and the European automotive sector.


Relying on private capital will likely provide limited returns given the capex associated with building the necessary infrastructure and the opex associated with European energy prices. These issues culminate in prospective European midstream players being unable to compete against cheaper Asia-based alternatives on cost, which downstream cell manufacturers will not want to digest, given the challenge in passing those costs onto OEMs and in turn consumers. 


Another option is to attempt honing vertically integrated regional champions with the requisite balance sheet strength. In recent years, across the minerals and chemicals landscape, there has been an increasing pursual of partnerships, minority investments, joint ventures (JVs) and less frequently M&A to gain vertical control in the value chain. For example, Rio Tinto made a $10m strategic equity investment in Nano One last year to collaborate on battery metals as inputs for Nano One’s cathode processing technologies. Northvolt is one such Europe-based cell manufacturer that is following a vertically integrated approach with a JV with GALP for a lithium conversion plant, as well as a partnership with paper and pulp producer Stora Enso for a lignin-based anode.


Vertically integrated players can benefit from the surety of technology roadmap alignment and afford the opportunity to co-locate on premises which offers clear synergies with regard to sharing R&D, know-how, resource, operationalizing the plant (including providing access to the requisite energy connection and contracting) whilst minimising logistics and associated challenges with transporting materials.


Other examples of vertical integration include Volkswagen’s offtake agreement to secure lithium hydroxide from Vulcan Energy and a JV with Umicore to produce precursor and CAM. While vertical integration does appear to be one tool deployed by OEMs and at-scale cell producers, it is still proving to be limited in its coverage and ability to reduce reliance on Asia.


One solution that looks increasingly promising is a coordinated approach to midstream development, spanning value chains and countries through the creation and development of European battery alliances. While vertical integration provides significant synergistic value, a multi-player alliance model can emulate this benefit and generate additional value for member states and industry actors in its coverage.


Today, the risk associated with each step of the value chain is different, and none of the preceding options can properly mitigate each of these risks. Miners feel the capital risk associated with funding multi-year exploration and drilling a new mine; midstream processers have to endure the risk of accessing sufficient material volumes as well as the challenge associated with managing high opex; and CAM manufacturers endure the risk of technological obsolescence if product roadmaps deviate with new discoveries. The development of an alliance that spans multiple facets of the value chain will help to share the risk and encourage investment and collaboration enabling European players to compete with Asia-based competitors.



Chapter 5

Principles for success in the batteries midstream

What European private and public players need to get right to solve the midstream challenge

A European midstream could involve establishing consortiums comprised of entities with varying partnership arrangements (from offtake through to JVs and shared equity stakes) from miner through to CAM and AAM supply and into cell producers.

An alliance would require a clear view and ability to prioritize focus and sequencing. This would need to take account of the chemistry requirements of battery manufacturers, but would also need to consider value, supply, demand and price forecasts, and vulnerability to the potential impact of the delivery speed of next-generation batteries. Given the forecasted demand ramp-up (9-10x increase to around 3mt globally by 2030⁴) and the longevity of need for lithium in lithium-ion cells, lithium (hydroxide or carbonate) may be a “no-regrets” starting point around which to develop an alliance from miner through to cell producer.

To be successful, a European alliance that spans the midstream must create a differentiated proposition that meets the needs of a European battery and automotive market. This will necessitate solving for the six following challenges:

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.

Developments in technology have material implications on the midstream, impacting demand for certain commodity mixes with new chemistry formulations, as well as higher integration of recycled materials.

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 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 and concentrate incentives further upstream where the financial return is less certain. To-date, CAPEX incentives have concentrated on development of gigaplants, but have been much more limited further upstream.

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 relative to North America (and China through the One Belt One Road initiative), 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.

This article is authored by James Nicholson, Piyush Patel, and Alex Lewis from the EY-Parthenon Energy Transition team. We would like to thank Simon Millage and Alicia Lukman for their contributions to this article.


Developing regional capacity in the battery materials midstream is crucial to improving component supply security and battery sustainability. In reviewing the current battery economy, Europe is currently lagging behind Asia and the US, but a regional alliance with an integrated technology roadmap, recycling capabilities and strong incentives may be the answer.

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