BriefCASE: Assault on battery

Since the second half of 2023, the electric vehicle segment has been facing strong headwinds, much to many people's surprise, as EVs have witnessed strong demand around the world in the last few years. Driven by ambitious zero-emission (ZEV) sales targets by both governments and automakers, together with growing consumer awareness, serene progress was anticipated.

The last several months have brought the realization of fundamental issues — such as the lack of charging infrastructure, long charging times, and the high initial cost of EV acquisition — that persist and need addressing. Most of these challenges will require years, if not decades, to fully solve.

All the noise around EVs led to massive investments in the EV ecosystem, from material sourcing to setting up significant manufacturing capacity for batteries. The faster-than-anticipated uptake was expected to propel demand for batteries requiring investments in capacity to meet the expected demand. However, with the slowdown, the industry is looking at oversupply, underutilization of capacity, and harder to justify investment plans.

Curtailing investments

Original equipment manufacturers and battery players have accordingly watered down their ambitions. This has led to several reports and official announcements of a pulling back or postponement of investments in battery projects in markets that had been seen as the biggest growth centers for EVs.

Most recently, it was reported that Automotive Cells Company (ACC), a joint venture by Stellantis, TotalEnergies, and Mercedes-Benz, has applied the brakes on two of its upcoming EV battery plants in Europe —in Kaiserslautern, Germany, and Termoli, Italy. Each plant was expected to have a production capacity of 40 GWh by 2030. ACC has a plant in Douvrin, France, already in production and expected to start battery cell supply later this year. Now, the three partners are expected to reach a final decision on future plans by the end of the year or early next year.

In May, mainland Chinese cell maker Svolt also announced that it was dropping plans to set up a plant in Germany. In 2022, Svolt had said that it would set up a 16 GWh cell plant in Lauchhammer to cater to European demand. The plant was scheduled to start production in 2025.

Volkswagen, too, has said it will hold back from taking a decision on its fourth battery plant in Europe. The automaker was scouting locations in central Europe for the plant.

"The poor performance of [battery electric vehicle] sales in 2024 has resulted in a surplus of capacity for cell makers. The significant price gap between European batteries, which primarily rely on NCM (lithium, nickel, cobalt, and manganese) technology, and LFP (lithium iron phosphate) cells from China further complicates the situation for European cell makers, especially as car manufacturers strive to introduce affordable electric vehicles," said Ali Adim, manager, technical research, S&P Global Mobility.

Europe is not alone in addressing this slowdown. Plans in North America are also coming under the microscope.

Ford has re-evaluated its battery investment plans in the US. Last November, the American automaker announced the scaling back of its BlueOval Battery Park in Michigan. Panasonic, one of the biggest cell manufacturers in the US, was reportedly planning a third plant in the country, but may also delay investing in additional capacity. There have also been reports that Northvolt may delay setting up its plant in Montreal, which was expected to become operational by 2026.

The cooling of demand has also led to a significant drop in the prices of critical battery raw materials such as nickel cobalt and lithium. According to S&P Global, prices for lithium, nickel, and cobalt sharply decreased in 2023 and are expected to decline further in 2024.

This will impact investments in battery material activities. Last week, Umicore said it was delaying spending on the construction of its battery materials plant in Loyalist, Ontario. Earlier, Bloomberg reported that BASF abandoned plans to invest in lithium mining assets in Chile and a nickel-cobalt refinery in Indonesia.

Investment overshoots are not uncommon when new technologies are introduced to industries or markets. The essence will be in how the battery value chain responds in reaching a more sustainable and mature plane. Central to that future will be surety over future regulations and a measured response to future opportunities from ecosystem participants.

Authored by: Srikant Jayanthan, Senior Research Analyst II, S&P Global Mobility

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