Cell Production Battery Cells from Europe: Highly Anticipated

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With battery cells from Europe, the domestic automotive industry would be independent of highly competitive Asian suppliers. What needs to happen for this — and is it still worth entering the market?

Plenty of energy! That is what Europe needs – both figuratively and technically – if battery cells for electric vehicles are to be produced here. For Europe to become self-sufficient in supplying these critical components by 2050, the annual European energy demand will rise from today's 3.5 terawatt-hours to around 250 terawatt-hours. However, this is only feasible "if a well-developed recycling infrastructure is in place by then." This forecast comes from a team led by Simon Lux, director of the Fraunhofer Facility for Battery Cell Research FFB, as of September.

Recycling. The European infrastructure for recycling used batteries is currently still "in an early stage of development," describe Lux and his team. Battery recycling rates and efficiency are crucial for independent procurement – and for the energy demand of cell production. The research team anticipates significant recycling capacities in Europe. According to their calculations, companies will recycle about 800 gigawatt-hours of battery capacity annually by 2050. This could reduce the energy required for battery production by 33 to 46 percent.

Slow Progress in Cell Production Expansion

However, for something to be recycled, it must first be created. In this case: battery cells. Chinese companies have now established, scaled, and optimized their production in their home country. A look at Germany: companies like ACC, Blackstone, CATL, Cellforce, Farasis, Svolt, and Northvolt have stopped projects, ceased operations, or become insolvent. Around 240 gigawatt-hours of production capacity for batteries are missing here, according to calculations by a team led by Tim Wicke. In Europe, the shortfall exceeds 700 GWh. Wicke is a research associate at the Fraunhofer Institute for Systems and Innovation Research ISI. Does Europe even stand a chance against the competition, which is now flooding markets with low-cost cells?

"Definitely yes!" says Michael Müller, Head of Climate Tech & Sustainability at the development service provider Capgemini Engineering. To close the gap and build competitive European champions, "we need to overcome the critical ramp-up phase on the one hand and simultaneously explore new paths with urgency that enable medium-term differentiation."

Although today's production volumes in Europe may not come close to reaching the projected values: "Nevertheless, there will be value creation in Europe at a significant volume. The question is whether this will be driven by European or established Asian — and specifically Chinese — companies," explains Müller.

Plan Versus Reality

Researchers at the Fraunhofer ISI also see opportunities for European battery cell production. According to an analysis by the institute, the announced production capacities in Europe will amount to more than two terawatt-hours per year by 2030. This would exceed the expected demand. However, "the past years have shown that the realization of all announced projects is highly unlikely."

The industry urgently needs to start working more closely together

Michael Müller, Capgemini Engineering

There are several reasons for this, including high energy prices, investment costs, and a lack of production know-how. "There are clear location disadvantages that we need to address structurally," confirms Michael Müller. However, according to the team led by Tim Wicke, the often-cited high labor costs do not seem to be a priority. Nearly 38 percent of the announced capacities are located in countries with low labor costs, 29 percent in regions with average wages, and 33 percent in countries with high wages. On the other hand, all announced production capacities in Europe are in countries where subsidy programs can be applied for.

Getting out of this predicament primarily requires substance. "The German industry must demonstrate that it can develop and produce innovative and competitive products in the necessary volume and quality. That is the main task to be solved," explains Müller. According to Wicke, the European Battery Regulation could play a favorable role. It requires, among other things, the disclosure of the CO₂ footprint and sets requirements for battery recycling.

This does not change the costs for now. However, "Germany has always been a high-cost location and will remain so," says Müller. "This is, on the one hand, a disadvantage, but on the other hand, it shows that we have the substance to mobilize the best and most innovative minds. I am very optimistic that we will continue to be a strong R&D and production location in the future. The basic prerequisite is that we develop differentiation perspectives." Standards regarding the quality and origin of a battery can be a differentiating feature.

What Can Companies Do?

But where to start? What exactly can and must companies do to manufacture competitive battery cells and batteries in Germany? "I would highlight two points as examples. First, focus on innovation in product and process development. We see potential to reduce development time and the associated costs for new cell projects by 50 percent using data-driven and AI-supported processes," explains Müller. "We are in a continuous R&D race. Those who can achieve the above-mentioned KPIs will automatically become industry leaders." Second, it must be clear in the context of the production ramp-up what can be handled internally and what cannot.

For topics outside their own core competencies, Michael Müller recommends acquiring strong partners: "The core problem is that many European players cannot meet their output and timeline goals for projects. This causes enormous costs." Likely one reason why Volkswagen's battery division "PowerCo" is looking for external investors.

VW's Chief Technical Officer Thomas Schmall stated during the IAA Mobility: "Growth beyond 2030 will only be financeable with external capital." This was already clear at the launch of the cell subsidiary. Nevertheless, it is a clear statement – coming from a company like Volkswagen. Suppliers report similar sentiments; currently, no one dares to set up a functioning cell production facility alone and survive economically.

The fact that Powerco can still stick to its plans today is primarily due to a manageable set of requirements. "From the very beginning, we placed great importance on a stable ramp-up. For example, we only have one cell type – the unified cell – and a factory layout that keeps complexity under control," explains Powerco CEO Frank Blome. "We have a very experienced, international team. Additionally, the Volkswagen Group supports us with know-how and manpower. If we need 30 production planners or IT experts today, they'll be on board tomorrow. No other startup offers that. And we have relied on partnerships with experienced companies right from the start."

A European Path

If partnerships contribute to success, why has no alliance of strong industrial companies emerged so far to promote production "Made in Europe"? It is apparently not due to a lack of courage, because: "We observe a strong will in the industry and politics to shape a common European path," explains Michael Müller, and sees significantly closer collaboration as crucial; additionally, lower investment requirements and risks through cooperation in non-differentiating areas.

In parallel, companies should, according to Müller, initiate joint development programs: for instance, in the digitalization of the entire product development and value chain. "The truth, however, is that we are not starting from scratch here, and we face different companies with varying goals, maturity levels, commitments, and technological strategies. We won't easily be able to bring this together." Therefore, companies should tackle the obvious synergies jointly in the short term, suggests Müller, "there are many points where we can start."

Predict Risks

Many points — for which a team at the Fraunhofer ISI has developed a risk assessment model. It can predict more realistic future capacities of battery cell production in Europe and assess the risk for battery production projects. The institute presented the model at the end of 2024.

The researchers combine an evaluation of individual announcements at the project level with a so-called Monte Carlo simulation, a method from stochastic analysis. The results show that likely only between 54 and 75 percent of the announced capacities in Europe will actually be realized. This would correspond to approximately 1.2 TWh to 1.7 TWh by the year 2030. Assumed construction delays and lower output in factories – due to production waste and lack of utilization – reduce the realistic production output to 0.8 to 1.1 TWh in 2030.

Master Common Cell Chemistries

Overtaking the competition, so to speak, and focusing now on solid-state batteries — the anticipated breakthrough technology — will not be a solution. "Solid-state batteries are a key technology for the future. But they are only one option in the broad portfolio of relevant cell chemistries," predicts Michael Müller.

"There are many approaches here that have medium-term relevance. The focus is on building the core competence of bringing innovative new cell chemistries with differentiating properties to the market at scale. Those who master this for conventional technologies will also be able to represent it very well for semi-solid and solid-state batteries."

Mastering the currently common cell chemistries is the right approach and necessary: "In the next three to five years, no major disruptions are to be expected on a broad scale. We will observe continuous optimization of the existing cell chemistries," explains Müller.

This optimization can – and ideally should – take design into account to efficiently recycle the batteries at the end of their lifecycle. "The demand for recycled battery materials is high and will continue to rise," says Müller, confirming the analysis by Simon Lux and his team. "Especially in Germany, we have a strong network of research, innovative startups, and established companies. We now need to demonstrate that the pursued innovative approaches and processes lead to cost-competitive and high-quality battery materials."

At its core, Müller sees it as a scaling challenge: from the lab and pilot line to large industrial volumes. "Germany is on a good path to play a central role in this future industry," he assesses. Simplified approval procedures for building cell production facilities or recycling plants are, according to Müller, one approach to making Europe a more attractive location.

"It is up to us to find common ways to build a competitive battery industry. However, the industry urgently needs to start working more closely together, learn from its mistakes more quickly, make pragmatic decisions, and be open to new creative approaches," says Müller. "Most importantly: to have the willingness to work hard for our place in this industry."