Europe is expected to overtake China to become the world's top region for electric vehicle (EV) production by 2030, creating new opportunities as well as challenges for industrial transformation.
The continent is expediting its vehicle electrification, partly prompted by the Volkswagen (VW) scandal of cheating on diesel emission tests and the COVID-19 pandemic, according to McKinsey & Company's report.
While China accounts for half of the global EV sales, Europe will exceed China to become the region with the world's biggest EV production capacity by 2030. The unit prices of EVs and fossil fuel cars will become similar by 2025, figures from GlobalData showed.
Global EV sales by regions (2021)
Source: Canalys; compiled by DIGITIMES, March 2022
In 2020, 1.4 million EVs were sold in Europe, surpassing 1.2 million ones sold in China. In 2021, China sold 3.2 million EVs – 15% of new cars sold there, while Europe sold 2.3 million EVs – 19% of new cars sold there, data from the International Energy Agency and Canalys showed.
The figures show that Europe reports the highest EV penetration rate. Many automakers and battery developers are swarming into the continent, which is catching up with China in building EV supply chains.
Policy incentives spurring sales
More European consumers are switching to EVs because stricter regulations of tailpipe emissions are in place and many governments have lowered EV prices by launching tax exemptions and other incentives to promote EVs. Europe's EV market is forecast to grow at a CAGR of 29.1% from 2021 to 2027, according to 6W Research.
Europe's EV production made up 20.5% of the global total in 2021, which will climb to 31% by 2030. By that time, the Greater China region will produce 14.9 million EVs, followed by Europe with 11.6 million units, and North America with 5.8 million units, IHS Markit reckoned.
The Renault-Nissan-Mitsubishi alliance in January 2022 pledged to invest EUR20 billion to develop five EV platforms over five years. Toyota in late 2021 also announced its plan to devote JPY4 trillion to EVs in the next five years.
Swedish battery developer Northvolt in late 2021 said it has produced its first lithium-ion battery at its factory in northern Sweden. "Marking a new chapter in European industrial history, the cell is the first to have been fully designed, developed and assembled at a giga-factory by a homegrown European battery company," it said.
VW in 2021 outlined its plan to pour US$100 billion into new automotive technology, including electrification, digitization, robotic production and mobility services, as part of its US$180 billion budget through 2026. The German automaker is projected to become the world's largest EV supplier, producing about 5.4 million EVs, compared with about 427,000 cars in 2021, IHS Markit said.
Mercedes-Benz in 2021 produced about 113,000 EVs, which is projected to reach 2.1 million by 2030. By that time, half of the group's EV production will stay in Europe, 35% in its bases in China, and less than 8% in North America.
Toyota has raised its EV sales goal from 2 million to 3.5 million units a year by 2030, and it plans to devote at least US$35 billion to EVs by 2026. About 28.6% of its EV production is in Japan, 27.5% in China, 21% in Europe, and 10.6% in North America.
Europe's BEV production in 2030
Jaguar, Land Rover, VW, BMW
VW, Stellantis, Land Rover
Tesla, VW, BMW, Benz, Ford, Stellantis
Hyundai, Mazda, VW, Toyota
Suzuki, Benz, BMW
Source: IHS Markit; compiled by DIGITIMES, March 2022
More super battery factories erected in Europe
European businesses are vying with their Asian rivals for dominance over EV battery production.
VW plans to build six plants for manufacturing EV batteries and components by 2030 – all in Europe. The first two are planned in Skelleftea, Sweden and Salzgitter, Germany, each aims to produce a capacity of 40GWh and power 300,000 vehicles annually.
In 2021, Nissan and Envision AESC announced a GBP1 billion initiative to build a battery factory in Sunderland, England.
McKinsey estimated that Europe will be home to 80 super battery factories to support its annual battery demand of 1.2TWh by 2040. As of July 2021, Europe has announced construction plans for about 40 planned factories. The continent has attracted established battery makers such as LG Energy Solution (LGES) and SK On, as well as fast-growing battery startups like Northvolt.
Battery supply chains fledgling in Europe
While there are not many battery supply chains in Europe, they may grow rapidly in the next 5-10 years, as new plans are mushrooming.
Almost all auto OEM firms own engine-making facilities near their plants, which will occur to the battery industry as well. LGES in 2021 has rolled out a EUR1.5 billion plan to expand its lithium-ion battery factory in Poland. As of the last quarter of this year, its Wroclaw factory will produce up to 65GWh of batteries, up from 35GWh now.
The biggest EV battery maker, China's CATL is a supplier of Europe's main automakers – VW, Benz, and BMW. Since 2014, CATL has worked with German government to develop battery technology. Some analysts said VW is likely to partner with CATL for its plans to build six super battery factories in Europe by 2030.
Battery production and assembly are the two segments that have been paid off. Northvolt has secured orders of more than US$27 billion worth with BMW, Fluence, Scania, VW, Volvo, and Polestars.
In late 2021, Northvolt and Portuguese energy company Galp set up a joint venture company, Aurora, and planned to build a lithium conversion facility in Portugal. They aim to make the facility the largest of its kind in Europe, with an initial goal of delivering up to 35,000 tons of battery-grade lithium hydroxide every year.
Another startup Britishvolt in early 2022 said it has agreed to provide batteries to Lotus, which is developing electric race cars.
Nonetheless, Europe still needs more investments to prop up EV charging infrastructure and new components supply chains. More foreign direct investment will flow into the supply chains, not merely at the OEM level, some suppliers said.
Europe's steady transition to EVs also signals that its auto industry is facing unprecedented changes.
Europe's auto industry provides direct and indirect jobs to 14.6 million workers – about 6.7% of total employment in the EU, figures by the European Automobile Manufacturers' Association (ACEA) showed.
Major automakers, such as VW group (owning brands VW, Audi, Porsche, Skoda, and Seat), Stellantis (Fiat, Peugeot, Citroen, Opel/Vauxhall), and Renault Group, BMW, and Benz are located in Europe. The continent accounts for a quarter of passenger sedans and 19% of commercial vehicles produced globally.
Companies of smaller sizes have to rely on revenues from making internal combustion engine vehicle components, but components such as spark plugs, fuel injection devices, exhaust tailpipes, gearboxes, and fuel tanks are no longer needed by EVs. Producing alternative products will be difficult for traditional manufacturers.