There is huge opportunity for Europe to capture a significant share of the lithium battery value chain, and potentially position the European electric vehicle sector as a global leader.
Awareness of this possibility is starting to grow and the construction of the first of several ‘Gigafactories’ that produce fully assembled lithium batteries shows that Europe is finally taking this prospect seriously.
However, finnCap analysts have identified significant gaps that could prevent the lithium battery value chain from being fully developed across Europe unless significant additional investment is made.
The European car industry is already a juggernaut with enormous growth potential, but its acceleration fundamentally hangs on a few factors.
As the world transitions to a lower-carbon economy, there will be a substantial impact on demand for the raw materials at the centre of this change; in the case of cars, the development of lithium batteries is a critical factor.
Awareness is growing
With the car industry shifting closer to an electric vehicle (EV) future, awareness of Europe’s potential to drive the sector is starting to grow, but it is in danger of failing to capture any of the potential value within this new lithium battery value chain.
However, recent investment proposals, in particular by the Volkswagen Group and by Swedish battery start-up Northvolt, suggest that the European car industry is finally getting serious about stepping onto the global stage.
Gigafactories – a step in the right direction
Construction is about to start on the first of several European integrated ‘Gigafactories’. These are complex facilities which take intermediate raw materials and convert them into fully assembled lithium batteries, for both the electric vehicle and the fixed storage markets.
Europe’s first ‘homegrown’, vertically integrated, lithium battery plant is being constructed by Northvolt, a private, Swedish start-up that was established by two former Tesla employees in 2016. Northvolt intends to build the world’s greenest lithium battery Gigafactory.
Indeed, this mindset is more or less determined by the location of the plant, which will be powered by hydroelectricity. The company has just raised $1 billion in equity as part of the financing package to fund construction.
Northvolt’s Gigafactory is a step in the right direction to capture the lithium value chain. The sheer scale of equity investment goes some way to quantifying the weight of expectation on the project.
In reality, however, much more lithium will be required as the plant scales up and a second plant in Germany is commissioned.
Potential barriers to progress
There are fundamental issues that could stop the lithium battery value chain from being developed within Europe, however, including significant investment gaps that have been identified by analysts at finnCap.
In addition, there does not appear to be sufficient awareness that the process of producing and refining lithium chemicals is absent from current European plans.
This is, in part, due to an assumption from the downstream sector, which assumes that all of the six European integrated mine and lithium chemical plants that have been proposed, will be built. It also assumes that these will be fully integrated mine-cum-chemical plants.
The final missing element is scale. The Volkswagen Group alone manufactured 10.1 million cars in 2018, of which 3.1 million were sold in Europe. In order to convert manufacture at this scale entirely to electric, the industry would need 20 Gigafactories of the scale proposed by Northvolt, of which six would be needed to supply Europe alone.
More investment is needed
There are at least six projects within Europe that are planning integrated mines and refineries but we contend that most of these will not get built as the economic returns are too low for what are relatively high-risk investments. This leaves a gap that will have to be filled.
If the European mining sector wishes to address the vast requirement for lithium batteries, far more investment is needed into European Gigafactory development to create an integrated supply chain across the continent. The sector also needs supporting facilitating planning, permitting and fiscal support in order to attract the substantial amounts of investment capital required.
Martin Potts, Research Director Mining at finnCap, comments:
“We are being presented with a massive opportunity to develop, in particular the widespread spodumene lithium mineralisation in northern Portugal.
"It has enough potential to support the substantial industrial developments that are necessary to close the gaps in the European lithium battery value chain and position the European electric vehicle sector as a world leader.”