France's very first battery factory for electric vehicles (EVs) opened its doors on Tuesday, a major industrial event for the country, which wants to become a key exporter by the end of the decade.

Mercedes-Benz and Automotive Cell Company's (ACC) so-called 'gigafactory' – the latest term for a large-scale battery plant – near the city of Lens is a symbol of one of President Emmanuel Macron's main policies: reindustrialization.

But it is also part of a wider push in Europe to boost EV battery production at a time when China has taken a considerable lead in the field. At present, Europe only has a handful of working gigafactories, but investments are multiplying, with some 50 projects announced in recent years.

In fact, its battery market is expected to grow its manufacturing capacity to 22 percent by 2027, up from approximately double that of 2021. 

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But despite the good news, rising competition from the U.S. and China's dominance in the industry means the European dream of wide-scale battery production isn't without its challenges.

 

France's push forward

France is one country heading the calls for EU's green industrialization. In the country's far north, an area emblematic of European deindustrialization, four plants are due to become operational before the end of the decade.

Politicians have dubbed the corridor in the Hauts-de-France region 'Battery Valley' and the strip will be key to Paris's aim of being self-sufficient in battery production by 2027. Firstly it wants to be able to supply its automotive industry, but it is also seeking ways to profit in a century where adapting to the climate emergency is key to developing the economy.

This goal has demanded further urgency since the EU moved to ban the sale of new combustion-powered vehicles from 2035. And while Europe is still largely dependent on batteries made in China for its electric cars, national leaders like Macron are promising various incentives to grow the continent's industry.

For example, the French president recently helped secure over $7 billion in Asian financing for his countries battery industry – including a new factory in Dunkirk – after offering a host of deal sweeteners to pull in foreign investment.

"We've built an industrial policy to be competitive with China and the United States. The results we're seeing in Dunkirk and across France aren't by chance," Macron recently told reporters from the shop floor of a local aluminum factory. 

But even if France is better off than some of its European partners, it continues to trail behind China and the U.S., which have heavily subsidized their battery industries. 

This is partly because securing the funds to power Europe's green industrialization has been hampered by recent moves in Washington. 

 

Europe on the back foot

The U.S. last year passed its $430 billion Inflation Reduction Act, which includes major tax subsidies to cut carbon emissions while boosting domestic production and manufacturing. 

And while close to 50 lithium-ion battery factories are planned for Europe by 2030, the U.S. subsidies are posing a new threat to these projects, with more and more investment heading to the U.S. instead of the EU.

A recent report from the European Federation for Transport and Environment warned that nearly 70 percent of potential battery production capacity in Europe (1.2TWh) is at risk of being delayed, scaled down or not realised, as investors are drawn by Washington's incentives.

Volkswagen, for example, was expected to announce a battery plant location in Europe late last year, but said in March it was awaiting more clarity from Europe on subsidies before making a decision.

Earlier this year, the EU introduced its 'Temporary Crisis and Transition Framework' (TCTF), which simplifies conditions for countries to grant aid to green projects, but critics say the process for extracting funds remains slow.

The countries whose plans for battery production are most at risk due to Washington swallowing up investment are Germany, Hungary, Spain, Italy and the UK, the report says. It stressed that Europe needed a strong response which included faster approvals for EU-wide funds focused on production scale-up.

But Europe's battery industry also faces other challenges, one being the supply of critical metals. Lithium-ion batteries require a lot of nickel, cobalt and manganese, whose production chain, from extraction to refining, is now largely controlled by China.

There are ways of designing batteries without these materials – for example, solid-state batteries and lithium-sulfur batteries – but these technologies are still only experimental. 

And while there are plans for France's first plant to evolve its technology from lithium-ion batteries to next generation solid-state batteries, the race is on to develop an entirely new ecosystem to promote the industry. 

 

France's response

France's four gigafactories should pave the way for an environment that attracts suppliers of battery materials and components, as well as recycling sites. Last month, Macron announced the creation of a factory for the production of cathodes – one of the two electrodes making up a battery – which will be partly financed by China's XTC.

But France has an advantage: its competitively priced zero-carbon electricity, produced by one of the biggest fleets of nuclear plants in the world. That's boosted by its increasing use of offshore wind farms and solar.

Still, Macron continues to stress that the EU has to come around to Paris' way of thinking on the need for greater European autonomy, especially after the COVID-19 pandemic and the Ukraine conflict exposed supply chain vulnerabilities.

"Without compromising our openness, we are acting to protect our interests, our independence... and to assert our European economic and social model," Macron wrote in a Financial Times op-ed.

His government remains eager to use the recent relaxation of EU state aid rules to offer new tax breaks and other subsidies to encourage investment in green technologies. He recently announced his government would offer a new tax credit worth up to 40 percent of a company's capital investment in wind, solar, heat-pump and battery projects.

Over in Germany – which has plans for more than four times France's current battery cell capacity production – the TCTF program has helped firm up plans for Swedish battery developer Northvolt to build in the country. That's after months of worry that it would opt for an investment in North America over Europe.

However, plans will only go ahead as long as the EU subsidies are approved, estimated by one source close to the matter to be around $650 million. They would be the first provided by Germany under the TCTF programme.

They still need the approval of the European Commission. And with nearly 80 percent of the country's projected battery production at risk, Berlin, the EU and its member states will have to move fast if Europe's gigafactories are to keep up with outside competition. 

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