Chinese battery makers are setting up in Europe

Chinese battery companies are flocking to Europe’s booming electric vehicle (EV) market to profit from the European Union’s (EU) ambitious goal to ban all fossil fuel cars by 2035.

This year, Chinese companies have raised more money through share sales in Europe than in the U.S. for the first time. Of 22 Chinese companies that have announced listings in Europe this year, half are in the EV battery business.

Open doors

Chinese companies have begun seeking listings in Europe as going public in the U.S. continues to get more problematic, and after the expansion of the Shanghai-London Stock Connect late last year. The Connect scheme initially linked only Shanghai and London but now extends to stock exchanges in Shenzhen, Germany, and Switzerland, allowing qualified China-listed firms to issue Global Depository Receipts (GDRs), enabling them to be traded in Europe. This provides an alternative avenue for Chinese companies to go abroad.

“Support from authority and accelerated regulatory review have really made GDRs an attractive financing instrument for many,” says Su Zheng, partner at the law firm King & Wood Mallesons, adding that the European market has a strong preference for new energy firms and the money raised by these companies from public listings could be directly invested into their overseas projects.

It took battery manufacturer Gotion High-tech 国轩高科 less than two months from securing Chinese regulatory approval to entering the funds that it raised on the SIX Swiss Exchange this year on its balance sheet, a process that would usually take several months to half a year. Three other battery companies, GEM 格林美, Keda 科达制造, and Ningbo Shanshan 杉杉股份 have also successfully rung the cowbell (literally) on the SIX. These companies collectively raised over $1.5 billion.

China’s effort to expand financing channels in Europe accords with the EUs EV plans, as the continent aims to meet domestic battery demand solely from EU producers by 2025, and to eliminate gasoline and diesel cars by 2035. This provides a window of opportunity for Chinese battery suppliers. China Customs data shows that the country’s lithium battery exports grew 53.7% year-on-year in the first quarter of 2022, with exports to the EU surging 1.4 times year-on-year.

As of September 2022, one in 20 new EVs sold in Western Europe is produced by Chinese manufacturers, a fivefold increase from just two years ago. An estimated 80,000-90,000 Chinese EVs are expected to hit the road in Western Europe in 2022, according to Schmidt Automotive, a Berlin-based consultancy.

Local factories

Chinese battery companies are also stepping up to build more factories in Europe. So far in 2022, there are at least eight Chinese battery cell projects under construction, with an estimated total annual production capacity of 214 gigawatt hours (GWh) by 2025. This is over three times Europe’s total 2021 battery capacity of 60 GWh.

This battery manufacturing boom started in 2019 when Chinese battery giant CATL 宁德时代 announced its first battery cell plant in Germany, which is expected to be in full production by the end of 2022. This August, CATL unveiled another $7.3 billion investment for a 100 GWh gigafactory in Hungary. Mercedes-Benz is confirmed to be the first partner to be supplied by this plant.

SVOLT 蜂巢能源, a spinoff of Great Wall Motors, announced its second plant in Germany this September, which is expected to reach 16 GWh capacity by 2025. Gotion High-tech, which has Volkswagen as its biggest shareholder, acquired one of Robert Bosch’s German factories last year and plans for it to be in operation as early as 2023. Other battery makers such as EVE Energy 亿纬锂能 and CALB 中创新航 are also preparing to set up factories in Europe.

Besides battery manufacturers, suppliers are also on their way. China’s largest battery recycling company, GEM, plans to invest 20% of the funds raised from its public offering in a battery recycling and production center in Europe. Battery separator manufacturer Shenzhen Senior Tech 星源材质, which recently filed its Swiss listing plan to the Chinese regulator, in September announced plans to expand its Swedish factory.

Chinese battery plants are popping up in Europe to satisfy the continent’s preference for localized manufacturing and to counter the risk of potential carbon border taxes. The EU has been pushing for the localization of battery production since 2017, at a time when it only had 3% of the world’s battery cell manufacturing capacity. The EU now expects to be self-sufficient in EV battery production by 2025. The EU also plans to start imposing a carbon import tax for certain emission-intensive products in 2023, which triggered an alarm for many Chinese exporters that have yet to meet the EU’s emission requirements.

Challenges ahead

The migration of Chinese battery manufacturers to Europe is not all smooth sailing, especially with the strengthening of environmental regulations in Europe. For example, EV batteries sold in the EU must comply with a carbon footprint threshold beginning July 2027, and vehicle batteries must reach a recycling rate of 85% by 2030.

The rules have teeth. BMW battery supplier EVE Energy has warned that it will need to fully adopt clean energy production and recycle at least half of the nickel it produces to meet the EU’s future requirements. Battery electrolyte maker Guotai 江苏国泰 had one of its battery electrolyte projects in Poland suspended due to the revoking of its environmental approval by a local court.

The EU has been pouring money into accelerating local battery supply capacity and laying out priorities to diversify sources of battery raw materials, notably critical minerals such as lithium and cobalt. This is in response to Europe’s reliance on foreign imports for its EV transition, particularly China, which are perceived to pose national security risks.

The takeaway

Chinese battery firms look set to succeed in Europe, but only if they can figure out how to navigate the regulations of the new market.