Financial Times — 2022-09-20
Automotive Industry
Since the car 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 establishes greater control of the supply chain for electric vehicles, Europe’s automotive sector faces one of the biggest challenges in its history as it tries to catch up. And it will not just mean creating factories to build the batteries, says Emma Nehrenheim, sustainability chief at Northvolt, Europe’s most advanced battery-making start-up. It will involve the whole ecosystem of mining, refining, and chemical engineering needed to supply them. “The one who owns processing capacity will be the one that controls and trades where the material comes from,” she says. The EU has big ambitions for EVs, aiming to phase out sales of new petrol and diesel-powered cars by 2035. In September 2022, the bloc’s leaders said they plan critical raw material's legislation to fund strategic projects and build stockpiles. However, China’s lead in battery manufacturing for EVs is stark. It is expected to produce 76% of global lithium-ion battery cells in 2022, compared with the EU’s 7%, according to Benchmark Mineral Intelligence.
“There’s a lot of ground to make up,” notes Francis Wedin, chief executive of Vulcan Energy, which hopes to produce lithium, a key battery material, in Germany. “China has been several chess moves ahead for a while now.” Vulcan — in which Stellantis, the carmaker formed by the merger of Jeep owner Fiat Chrysler and Peugeot owner PSA, has invested €50m — illustrates the challenge. Lithium is dug up from hard rock in Australia and processed in China, or slowly evaporated from brines in Chile. Vulcan wants to start producing lithium in Germany from 2025 with a new, unproven technology, which pumps up brine and extracts lithium directly using geothermal energy. But, besieged by rocketing energy bills and rising borrowing costs, executives in Europe’s battery and raw materials industry fear the continent will become reliant on Asian companies, including China’s CATL, South Korea’s LG Chem and Japan’s Panasonic.
Roland Getreide, chief of Luxembourg-based Livista Energy, which is seeking to build lithium refineries in the UK and mainland Europe, says getting the supply chain ready for when electric vehicle demand soars is at the fore of the industry’s problems. Europe is trying to “compete with people who are 20 years ahead with cash flows already”, he says. Even if Europe draws battery manufacturing investment, executives see a vast difference between Asian battery makers setting up “satellite” factories in Europe supplied from Asia and a local European player procuring and supporting a local supply chain. Last month, CATL announced a mammoth $7bn investment in a gigafactory battery production site in Hungary. “The battery makers from Asia that set up in Europe would bring in their materials in a semi-finished or finished form,” says Mark Thompson, chief executive of Australian advanced materials company Talga. It is developing a project in Sweden to extract and process graphite, vital for battery anodes.
Europe has almost no lithium and graphite operations. It is home to just one of the world’s 15 battery-grade manganese sulfate producers and accounts for only 9% of the global cobalt chemical supply, says critical minerals consultancy Project Blue. European battery makers would need to bring in materials from abroad for some time since it takes far longer to develop mining projects than battery factories. “In the early days, you can’t avoid bringing materials in,” says Thompson. Europe’s auto sector also faces challenges in establishing a supply chain for electric motors, the second most valuable part of EVs. These need highly specialised permanent magnets that use rare earth, a collection of 17 elements that are extremely difficult to extract and process. China dominates the production and processing of rare earth, with an estimated 80% global market share.
Only one company in Europe’s supply chain — Canada’s Neo Performance Materials — is presently capable of separating rare earths materials for use in magnets. It has exploration rights for a rare earths mine in Greenland, the autonomous country within the kingdom of Denmark. Hastings Technology Metals, an Australian rare earths miner, recently agreed to take a 22% stake in Neo Performance. But the deal is being funded by a A$150mn investment in Hastings from a group tied to Andrew Forrest, one of Australia’s richest men — further evidence that the future of Europe’s automotive industry is enmeshed in a broader geopolitical and geological web. Constantine Karayannopoulos, Neo Performance Materials’ chief executive, suggests Europe is only just recognising the key to China’s dominance. “What the narrative is missing is that China is the largest producer of rare earth because it is the largest consumer of rare earth,” he says. “The magnet industry has been driving the rare earth industry.” Neo aims to make magnets in Estonia from 2024, to consume its separated rare earth. GKN in the UK is also exploring building EV magnets. Project Blue founder Nils Backeberg says China continues to send reminders of its dominance. Last month, it raised its annual rare earth mining output quota, which Beijing uses to control prices, by 25% to a record high: “This has re-emphasised that China holds all the cards.”