Cars climate brief #3: Why the European battery industry needs ambitious car CO2 standards
This brief is the third in a series of short analytical pieces in which T&E will share fresh insights related to the revision of the car CO2 standards.
If the battery industry delivers on all the current projects, enough batteries could be produced in Europe in 2030 to power a new car fleet that is 75% battery-electric, bringing CO2 emissions from new cars down more than 90%. This would establish Europe as an industrial leader in battery production, with more than 40,000 direct factory jobs just in battery cell manufacturing. It would also put Europe on track to deliver on the Paris climate goals and its Green Deal ambition.
Yet, this bright future is in jeopardy unless strengthened CO2 standards drive carmakers to supply higher shares of electric vehicles than they would under the current regulation. Should the ambition of the current CO2 standards not be raised (red line in graph), the planned battery capacity would be almost three times higher than the demand, and 21 gigafactory projects currently planned in Europe would not see demand for their products (light blue line in graph). This represents more than 19,000 jobs missed, and €14 billion in investments becoming stranded assets. On the contrary, T&E’s recommended car CO2 targets of -25% in 2025, -40% in 2027 and -65% in 2030 ensure adequate battery demand from future projects (yellow line).
European battery supply and demand through 2030
— How Europe undersells its battery ambitions —
38 European gigafactories are planned to produce car battery cells by 2030, amounting to €39.5 billion worth in investments, and potentially creating 44,000 direct factory jobs. 17 such gigafactories have secured funding worth €25.5 billion, including state aid (e.g. Tesla’s Berlin gigafactory which received €1.2 billion in German federal and state support). They will create 25,000 jobs and will amount to a production capacity of 318 GWh in 2025, and 474 GWh in 2030. Four of these also plan to expand in the coming years, raising their output by 300 GWh in 2030. 10 other gigafactories have received partial funding and support, representing at least 19,000 job creations, €14 billion in investments, and a combined supply of 144 GWh in 2025 and 370 GWh in 2030. Finally, 11 other battery projects without planned production or investments are under consideration, including four additional gigafactories by Volkswagen, as it announced on its Power Day.
Current car CO2 standards put EU battery boom at risk: Under the current CO2 emission targets (Current policies: red line), there would be a consistent battery surplus in 2022–2029, averaging 143 GWh if only fully-financed projects operate, and 317 GWh if partially financed projects are also realised. As higher standards kick in in 2030, supply from fully-financed projects would fall 11 GWh short of demand, but there would still remain a 659 GWh surplus from partially-financed projects.
If the 2030 car CO2 target is simply raised to -50% (Enhanced 2030: orange line), as hinted by the European Commission in its 2030 Climate Target Plan last year, the battery surplus problem would remain in the 2020s while in 2030 and 502 GWh from partially-funded projects still would not find consumers. Such a revision without ambition would not create sufficient demand through 2029, or match supply in 2030. When both the fully and partially financed projects are considered, the planned battery capacity is almost triple the minimum demand in 2025-2030 in the current policies scenario.
Europe’s battery success is in the hands of climate regulators: Matching the EU’s battery potential requires ensuring a smooth and important uptake of electric vehicles. Much of the excess battery supply will be solved if the current driver of electric vehicle production and sales—car CO2 standards—are raised in the 2020s. T&E’s recommended car CO2 targets (-25% in 2025, -40% in 2027, -65% in 2030; Accelerated: yellow line) would create demand for batteries from partially-funded projects as soon as 2027, and reduce surplus from such projects in 2030 by 58% to 279 GWh. Oversupply in this scenario is comfortably within a margin that can safely be filled with either exports as Europe would then be a global industrial leader in batteries and EVs, or faster-than-expected ramp-up in electric car sales as they become cheaper to produce than conventional cars.
— Recommendations —
The conclusion is clear: the current EV regulations are underselling Europe’s battery potential. Demand for battery cells needs to increase significantly beyond what is needed by the current car CO2 regulation in order to avoid a possible battery bubble. The Commission’s expected plan to increase demand for EVs only in 2030 would not solve this problem. To provide higher degrees of investment certainty the CO2 targets for cars and vans should be raised in the 2020s, especially between 2025 and 2029 where the surplus problem is most acute. In other words if the EU doesn’t want to put the expected European battery boom at risk and wants to give the needed offtake certainty to the nascent battery market across Europe, it should increase the 2025 car CO2 target to -25%, set an additional binding 2027 target of -40%, and raise the 2030 target to at least -65%.