Putting the E in E-Mobility

Batteries are the heart of the electric vehicle revolution. Previously, Asian imports of lithium-ion batteries dominated the European market, but production is now shifting to Europe – and Germany in particular. That means big changes and chances.

June, 2021

When the Chinese battery manufacturer SVOLT went in search of a location for its European manufacturing plant, it set the bar pretty high. “We knew we were going to have a very highly complex, sensitive production process,” says its president of Europe, Kai Wollenhaupt, “and as a result the quality of the workforce was extremely important.” The idea was to build one of the most advanced factories in the fast-moving e-mobility industry, with over 3,000 production parameters guided by cutting-edge artificial intelligence. Moreover, it had to make its products exclusively with green energy, since that’s what buyers of electric vehicles demand, but the price of power still had to be competitive. 

© Shingo Tamura, Getty Images

SVOLT executives visited 32 sites all over Europe before settling on the southwestern German state of Saarland on the French border. “We realized Germany was the best fit – Saarland really combined all the factors we needed,” Wollenhaupt says. If all goes according to plan, SVOLT will begin producing battery modules and packs in Saarland next year, with a full-fledged battery factory operational by 2023. Ultimately, the China-based company plans to produce enough batteries for up to 500,000 electric vehicles (EVs) per year at its German facilities.

World coming to Germany

SVOLT is just one example of a growing trend. A new market analysis by the Brussels environmental protection association Transport & Environment (T&E) predicts a bright future for electric vehicle battery production in Europe’s largest market. T&E anticipates a nearly tenfold increase in European capacity between 2020 and 2055, from 49 to 460 gigawatt hours. Around half of this production is expected to take place in German factories, the organization says, and European supply could meet European demand in the near future. Of the 20+ so-called “gigafactories” (factories that produce electric car batteries on a huge scale) planned on the continent, ten will be located in Germany, including those of heavyweight manufacturers like Tesla, CATL and Farasis.

»The past few years have seen major players in the EV battery sector – SVOLT, Tesla, CATL, Farasis – expand production to Germany. Experts say that having a German subsidiary is becoming “a must” for companies that want to take part in the e-mobility revolution. «

Experts point to a number of reasons why battery and component manufacturers are choosing Germany. Some are obvious: being close to major German auto manufacturers, for example, or the availability of a highly trained workforce. Other factors aren’t as immediately apparent. The high proportion of green power in Germany’s energy mix, for instance, makes it possible to produce batteries at nearly CO2-neutral levels, and a well-developed rail infrastructure means it’s easy to transport them to customers.

A roadmap for carmakers

Meanwhile, strong government mandates for electric vehicles are supercharging Germany’s transition to e-mobility. More than a decade ago, the auto industry promised to reduce its carbon emissions on a voluntary basis. But that didn’t happen, and the regulators had to step in to encourage European carmakers to act.

The Paris Agreement in 2015 gave the industry a major push in the right direction. The international treaty laid out a roadmap for steady reductions in CO2 for the auto industry. Up until 2019, fleets could average 130 grams of CO2 per kilometer. Starting in 2021, that dropped to 95 grams per kilometer, and planned reductions will continue over the next decade. “There’s no way that this can be achieved with combustion engines,” says GTAI’s deputy director for Mechanical & Electronic Technologies, Stefan Di Bitonto. “That means companies need to reduce the number of internal combustion engines they sell. They need more electric cars.”

»Looking at the global market, the 400,000 e-vehicles sold in Germany make it one of the largest e-car markets worldwide, with more new car registrations than the US.«

Professor Stefan Bratzel,
executive director of the Center of Automotive Management think tank

The changes had a big impact on the German market in particular. Reducing overall emissions has been trickier for German carmakers that tend to focus on the premium market – bigger, more powerful cars, with big engines and big appetites for gasoline. “They produce more emissions than, say, French or Italian volume cars with their smaller engines,” Di Bitonto explains.

The new EU-wide regulations regarding CO2 emissions from cars that come into effect in Germany in 2021, which will steadily tighten over the next decade, have prompted a flurry of investment in the various components that go into building EVs. Demand for batteries, the most critical component in electric cars, is booming. “The timing is totally driven by regulation,” says Sebastian Wolf, head of EU operations for the Chinese-American battery manufacturer Farasis Energy. “That’s really making OEMs accelerate their activities.”

State subsidies

German policymakers have also been actively working on incentives to drive uptake of electric cars. It’s now possible for car buyers to get up to EUR 9,000 off the price of a new EV, making them competitive with combustion engines and hybrids. That’s yielded impressive results. In 2020, the proportion of EVs in overall new car registrations in Germany jumped from 3 to 13 percent. Volkswagen, for example, tripled sales of its electric cars, moving over 200,000 vehicles in 2020 alone.

Experts expect the trend to continue, and some auto manufacturers in Germany – Ford, for instance – already have plans to phase out combustion engines entirely. “When we look at the global market, the 400,000 e-vehicles sold in Germany make it one of the largest e-car markets worldwide, with more new car registrations than the US,” says Professor Stefan Bratzel, executive director of the Center of Automotive Management think tank. “That’s a turning point. Germany is now the world’s second largest EV market after China.”

Sources: 1) Transport & Environment; 2) EV-volumes.com

Experts expect the trend to continue, and some auto manufacturers in Germany – Ford, for instance – already have plans to phase out combustion engines entirely. “When we look at the global market, the 400,000 e-vehicles sold in Germany make it one of the largest e-car markets worldwide, with more new car registrations than the US,” says Professor Stefan Bratzel, executive director of the Center of Automotive Management think tank. “That’s a turning point. Germany is now the world’s second largest EV market after China.”

That means companies are rushing to enter the German market now and getting ready for high demand a few years down the line. SVOLT, Tesla, CATL and Farasis have all announced billion-euro battery production plant investments in the country, and last year French energy giant Total announced a partnership with PSA, the company behind the German car brand Opel, to build twin battery production facilities in France and Germany.

The heavy investment in battery production is also driving interest in other parts of the e-mobility value chain, from charging stations to battery raw materials, connectors, and self-driving and power management technology and software. “Five years ago, a lot was different in the European market,” says Maxim Hantsch-Kramskoj, vice president of sales and marketing at SVOLT. “Right now, demand is low, but the number of platforms for full e-mobility is expanding rapidly. We’re at a tipping point where demand is rising significantly.”

Affordable energy sources

Battery manufacturing is one of the most energy-intensive steps in the making of an electric car, so at first look it might appear that Germany is at a competitive disadvantage. Since the mid-2000s, most German companies and private consumers have paid a tax surcharge to support the development of renewable power under the Renewable Energy Sources Act or EEG (Erneuerbare-Energien-Gesetz). “The energy costs in Germany are quite high compared to other places in Europe,” concedes Bratzel.

4 Reasons to Expand into Germany

1

Location, location, location: Some of the world’s most recognizable and successful automotive brands are headquartered in Germany, along with hundreds of smaller suppliers.

2

Energy prices: Germany eases its high taxes on electricity for energy-intensive industries involved in the green economy, making power cheaper for e-mobility suppliers.

3

Skills base: Germany’s skilled workforce is a perfect fit for the high-tech requirements of e-mobility manufacturers’ highly automated production centers.

4

Growing market: Germany is the largest electric car market in Europe and the second largest in the world. Battery producers who want to be part of the e-mobility revolution need a direct connection to these car buyers.

But that’s not the whole story. To ensure German industry remained competitive with its counterparts elsewhere in Europe and around the world, the EEG doesn’t necessarily apply to companies with particularly high energy consumption. In 2017, for example, several thousand companies saved approximately EUR 8 billion in power costs through the EEG rebate program. “When it comes to energy, Germany is not a low-cost country,” says GTAI’s Markus Hempel, who facilitated Chinese company CATL’s expansion to Germany. “But you have a chance of getting exempted if you’re part of a green industry or product, which means the end user price is not the price you would have to pay.” That changes the arithmetic for e-mobility manufacturers.

Good clean energy sources

Aside from price, the source of the electric power is also significant. Governments and consumers demand that EVs are produced with clean energy, and that’s particularly true of batteries. “The battery is one of the most expensive and energy-intensive components,” Hempel says, “and e-mobility is only as green as the energy you’re putting into it.”

Di Bitonto says some business managers demand guaranteed access to green energy sources, not just certificates showing green power is part of their factory’s power mix. “Everyone wants as much renewable energy as possible,” Di Bitonto says. “Manufacturers can’t market cars as environmentally friendly if they have a value chain that includes coal.”

As a result, batteries produced in eastern European countries that lean heavily on coal-fueled power are at an immediate disadvantage. “Battery cells made in Poland have quite a high CO2 footprint,” Bratzel says, “and manufacturers want a low CO2 footprint for the whole cycle.”

Germany’s regional advantages

Germany’s regional states offer a variety of deals on land, transport connections and other infrastructure to attract battery and other e-mobility industries. Conversely, foreign e-mobility investments are expanding the map of the German automotive industry from its traditional center in the South/Southeast to other parts of the country: from SVOLT’s Saarland plant in the Southwest to Tesla’s 300-hectare factory in Brandenburg, just outside of Berlin. Other eastern German states like Saxony-Anhalt and Thuringia are also quickly establishing e-mobility centers.

Germany maintains a global reputation for highly skilled workers particularly in the automotive sector. Though salaries can be high compared to some parts of Europe, more and more manufacturers are realizing that locating in cheaper labor markets further east adds additional costs, especially as batteries made there need to be transported to auto plants in Germany.

There are indications the initial flood of foreign companies into Hungary and Poland has exhausted the relatively small pools of qualified labor in those markets, while over the past two years demand has been increasing. “The automotive heartland that is Germany has showed battery makers this is the place to be,” says Di Bitonto.

»The number of platforms for full e-mobility is expanding rapidly. We’re at a tipping point where demand is rising significantly.«

Maxim Hantsch-Kramskoj,
VP sales and marketing, SVOLT

There are indications the initial flood of foreign companies into Hungary and Poland has exhausted the relatively small pools of qualified labor in those markets, while over the past two years demand has been increasing. “The automotive heartland that is Germany has showed battery makers this is the place to be,” says Di Bitonto.

There are other reasons to build battery factories in close proximity to where cars are produced. In today’s car industry, “just in time” is a mantra. Shipping batteries from Asia takes up to two months, an eternity in the precisely timed automotive world. “You simply can’t afford to have millions of euros worth of batteries sitting on a ship for six to eight weeks,” Di Bitonto says. “Manufacturers have to be closer to where the batteries are needed.”

Less transportation is better for the environment, too. Farasis’ Wolf asserts that sustainability was a major factor behind his company’s decision to build a major new battery plant in Germany. After Farasis signed a contract with Daimler to produce batteries for their e-cars in 2018, the next step was to open a European production center. “We knew, if we wanted to make a sustainable product, we couldn’t be transporting heavy products by ship,” says Wolf. “We decided to produce in Europe for Europe.”

With labor costs, electricity prices and proximity to Daimler and other major car manufacturers all important considerations, Farasis settled on the eastern German state of Saxony-Anhalt, signing a deal in late 2020 to invest EUR 600 million in a new plant in Bitterfeld, near Leipzig.

A “must” for international companies

Stefan Bratzel predicts that establishing subsidiaries in Germany will become “a must” for foreign companies hoping to make it in the European market. “What is quite attractive is that we have car manufacturers with production plants in Germany,” he says. “And when you’re a supplier, it’s better to be closer to production.”

That holds true for the whole supply chain, experts say. Battery manufacturers need components, too – particularly housing, connectors, coatings and the many specialized chemical components required to make a battery. “You need deep pockets to build a battery plant,” Di Bitonto says, “but it has a multiplier effect – a lot of smaller suppliers are also necessary. There are so many ways all these companies can find opportunities in Germany.”

SVOLT expects its operations in Saarland will employ 2,000 people directly and create thousands of ancillary jobs on top of that. “There are going to be a lot of services and suppliers,” Wollenhaupt says. “And for a lot of that we are looking for strong partners so we can focus on our own core business.”

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