The EU risks falling behind in its efforts to become the “engine” of the electric battery sector worldwide, according to a report published on Monday by the European Court of Auditors, cited by Reuters and Agerpres.

However, according to this report, access to raw materials remains a major obstacle, along with rising costs and fierce global competition. The EU’s efforts to develop its battery production capacity may therefore not be enough to meet growing demand, meaning the EU risks missing its zero-emissions target by 2035, auditors have warned.

Almost 1 in 5 new cars registered in the EU in 2021 were plugged in, and the sale of new petrol and diesel cars is to be banned from 2035. Thus, batteries have become a strategic imperative for the EU.

The battery industry in Europe has lagged behind its global competitors, especially China, which accounts for 76% of global production capacity. With the intention of renewing the EU’s efforts to become a global battery “engine”, the European Commission published a strategic action plan on batteries in 2018.

The Commission has set out, for the most part, the most important tools in this plan to support the sector, including providing the necessary strategic leadership, legislation and funding.

The EU does not have a review of investment in battery production

“The EU should not find itself with batteries in a position of dependence, as happened with natural gas. Its economic sovereignty is at stake. In its plan to end sales of new petrol and diesel cars by 2035, the EU is placing a huge bet on batteries. But they may not be very good in terms of access to raw materials, attractiveness for investors and costs,” said Annemi Turtelboom, a member of the European Chamber of Auditors who led the audit.

Between 2014 and 2020, the battery industry received at least €1.7 billion in grants and loan guarantees from the EU, on top of the €6 billion in state aid allowed between 2019 and 2021, mainly in Germany, France and of Italy

However, the auditors found that the European Commission does not have an overview of the overall state support provided to the industry, which limits its ability to provide adequate coordination and direction. Battery production capacity in the EU is developing rapidly and could grow from 44 gigawatt-hours in 2020 to 1,200 by 2030.

However, this forecast is by no means guaranteed and may be jeopardized by geopolitical and economic factors.

Fears that manufacturers will choose the US, which subsidizes the sector

First, battery manufacturers may leave the EU in favor of other regions, especially the US, which offers them strong incentives. Unlike the EU, the US directly subsidizes the production of minerals and batteries, as well as the purchase of electric vehicles, if they and their components are produced in this country.

Second, the EU is heavily dependent on raw material imports, especially from several countries with which it does not have trade agreements: 87% of crude lithium imports come from Australia, 80% of manganese imports from South Africa and Gabon, 68% of crude cobalt imports come from Democratic Republic of Congo, and 40% of raw natural graphite is imported from China.

Although Europe has more mineral reserves, the time period from discovery to production is at least 12-16 years, which does not allow it to respond quickly to increased demand. Current contractual agreements provide for the supply of raw materials, as a rule, only for two or three years of the production period.

In March of this year, the European Commission submitted a proposal for a law on critical raw materials in response to this situation, auditors noted.

Rising prices of raw materials are another problem for Europe

Third, the competitiveness of battery production in the EU may be threatened by rising raw material and energy prices. At the end of 2020, the cost of the storage battery (€200/kWh) more than doubled the planned target value.

Over the past two years, the price of nickel has increased by more than 70%, and the price of lithium has increased by 870%.

Auditors also criticize the lack of quantitative and time-bound targets. Around 30 million zero-emission cars are predicted to be on European roads in 2030 and it is possible that almost all new registrations from 2035 will be battery electric vehicles.

However, the current EU battery strategy does not assess the capacity of the battery industry to meet such demand. In general, the auditors warn of two possible worst-case scenarios if battery production capacity in the EU does not grow as projected.

In the first scenario, the EU may be forced to delay the ban on the sale of internal combustion engine cars after 2035, thus falling short of its carbon neutrality goals.

In the second scenario, the EU would have no choice but to rely heavily on batteries and EVs produced outside the EU, at the expense of the European car industry and workforce in the sector, to achieve a zero-emission vehicle fleet by 2035.