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With a slowdown in enthusiasm for battery electric vehicles,
the battery industry is wrestling with a combination of oversupply,
underutilization of capacity and lower return on investments.
Since the second half of last year, the electric vehicle segment
is facing strong headwinds, much to the surprise of many, as EVs
have been witnessing a strong demand in the last few years in
several markets around the world. The ambitious zero-emission (ZEV)
sales targets by both governments and automakers painted a rosy
picture about the EV industry and how quickly it is expected to
evolve.
As the novelty of EVs fades, the last several months have
brought forth the realization that there are still fundamental
issues that persist and need to be addressed for EVs to be a widely
accepted solution. Some of these issues are the lack of charging
infrastructure, long charging times and the high initial cost of EV
acquisition. Most of these challenges are not short-term and will
require years, if not decades to be fully solved.
What all the noise around EVs has led to is a massive investment
from many stakeholders in the EV ecosystem, right from material
sourcing to setting up significant manufacturing capacity for
batteries. The faster-than-realized uptake of EVs was expected to
propel the demand for batteries which necessitated a capacity
expansion to be able to able to meet the demand.
However, with the slowdown, the industry is now looking at a
case of oversupply, underutilization of the capacity and lower
return on investments.
Curtailing investments
From what has transpired in the industry in the last few months,
the OEMs and battery players have watered down their ambitions.
This has led to several reports and official announcements of
pulling back or postponement of investments in battery projects in
markets which were seen as the biggest growth centers for EVs.
Most recently, it was reported that Automotive Cells Company
(ACC), a joint venture by Stellantis, Total and Mercedes-Benz, has
decided to apply brakes on two of its upcoming EV battery plants in
Europe. The two plants are located in Kaiserslautern, Germany, and
in Termoli, Italy. Both plants were expected to have a production
capacity of 40 GWh each in 2030.
ACC also has a plant in Douvrin, France which is already in
production and is expected to start battery cell supply later this
year. Together, ACC had announced an investment of $7.6 billion in
the three plants. In the light of the slowdown, the three partners
are expected to review their investment plans by the end of the
year or early next year.
In fact, Mercedes-Benz has also announced a delay in its
electrification plans, pushing back its goal of 50% electrified
vehicle sales by five years. In 2021, Mercedes-Benz had said that
it will have 50% electrified vehicle sales (BEVs and hybrids) by
2025, which is now expected to be reached in 2030.
Earlier in May, mainland Chinese cell maker Svolt also announced
that it is dropping plans to set up a plant in Germany. In 2022,
Svolt had said that it will set up a 16 GWh cell plant in
Lauchhammer, Brandenburg to cater to European demand. The plant was
scheduled to start production in 2025. The tariff of mainland
Chinese players in Europe also played a role in Svolt taking this
decision.
Volkswagen too has said that it will hold back from taking a
decision on its fourth battery plant in Europe. The automaker was
aiming to set up a new battery plant in Eastern Europe and was
looking at Czech Republic, Hungary, Poland or Slovakia as possible
locations.
“Most of the European cell manufacturing projects are currently
facing challenges due to the recent slowdown in battery-electric
vehicle (BEV) sales. The investments made in new projects, or the
expansion of existing facilities were based on the expectation of
continued astronomical growth rates in recent years. However, the
poor performance of BEV sales in 2024 has resulted in a surplus of
unused capacities for cell makers. The significant price gap
between European batteries, which primarily rely on NCM technology,
and LFP 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 the only region where an investment slowdown is
being witnessed. Several reports suggest that OEMs and battery
players are also delaying their investments in North America.
American automaker Ford also brought its battery investments
plans back to review board. Last November, Ford announced scaling
back of its Michigan plant in the US.
“While we remain bullish on our long-term strategy for electric
vehicles, we are re-timing and resizing some investments. As stated
previously, we have been evaluating BlueOval Battery Park Michigan
in Marshall. We are pleased to confirm we are moving ahead with the
Marshall project, consistent with the Ford+ plan for growth and
value creation. However, we are right sizing as we balance
investment, growth, and profitability. The facility will now create
more than 1,700 good-paying American jobs to produce a planned
capacity of approximately 20 GWh,” Ford said in a statement in
November 2023.
BlueOval Battery Park Michigan is a $3.5 billion investment by
Ford Motor Company which will produce lithium iron phosphate (LFP)
batteries that will power a variety of Ford's next-generation EV
passenger vehicles and pickups. Previously, the plant was set to
manufacture 35GWh of batteries and employ 2,500 people.
There also have been reports that Panasonic, one of the biggest
cell manufacturers in the United States, may also delay investing
in additional capacity of battery plants in North America.
Panasonic was reportedly planning to set up a third plant in the
US. However, the delay in investment may have put the plans for the
third plant in a limbo. “There's a need to control the speed of
investment depending on the speed at which EVs spread,” Yuki
Kusumi, Panasonic group's chief executive, was quoted as
saying.
There have also been reports that suggest Northvolt may delay
setting up its plant in Montreal, Canada, which was expected to
become operational by 2026.
Northvolt recently hit another roadblock when BMW, one of its
biggest customers, reportedly cancelled its €2 billion order for EV
lithium-ion battery cells. The supply of the cells, which were to
be produced in Europe at the Northvolt gigafactory at Skellefteå in
northern Sweden, was scheduled to start in 2024. Although
production delays were cited as one of the reasons for
cancellation, BMW may also be reviewing its cell demand, given the
slowdown in EV sales.
The cooling down 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.
High voltage battery forecast
data.
By Srikant Jayanthan, Senior Research Analyst II, S&P Global
Mobility