Why Europe is losing the gigafactory race to China

Europe prioritizes sustainability, which is slowing progress. Northvolt offers a cautionary example. Its first gigafactory in Sweden focused heavily on clean energy, recycling and zero-waste production. But by mid-2023, its output was just 1 GWh — far below its promised 16 GWh — and BMW canceled a €2 billion contract due to delays.

While Northvolt’s vision was bold, it distracted from execution. Meanwhile, Chinese firms have quietly outpaced Europe in their efficiency and carbon footprint. The average carbon footprint for battery production is lower in Greater China than in Europe, despite larger capacity.

Europe’s dominant battery cell is the NMC, which offers higher energy density but is more expensive and reliant on scarce materials than the LFP, which is widely used in China. LFP cells are cheaper, safer and increasingly preferred for mainstream EVs, including most Tesla Model 3s and popular Chinese models. 

Europe’s electric vehicle industry lacks meaningful LFP production. While Chinese firms like CATL are adding LFP capacity in Hungary, no local EU battery maker has brought LFP production online, a huge disadvantage as automakers seek lower-cost solutions. However, LG Energy and VW’s PowerCo are beginning to install LFP capacity at their battery production sites in Poland and Germany, respectively. 

China heavily incentivizes its battery manufacturing sector. Companies like CATL, BYD and EVE Energy have received billions in direct subsidies since 2018. In contrast, the EU’s battery policies have had mixed results. Since 2018, the EU has launched an array of regulations and funding initiatives — from the Critical Raw Materials Act to the Battery Passport and the Net Zero Industry Act — but with limited success.

Many initiatives focus on sustainability targets and long-term strategies, not short-term production incentives. The recent €1.8 billion "battery boost" package for 2025–27 helps, but it pales in comparison to the US Inflation Reduction Act’s generous, direct tax credits for domestic battery production.

EU trade policies add pressure. EU battery cell import duties are just 1.3% versus US tariffs on Chinese batteries as high as 58%, which leaves European battery makers exposed to cheap imports.

Billions in new investments are still flowing into European gigafactory projects. These include Agratas’ proposed 40-GWh facility in Somerset, UK, backed by Tata Group and set to start production in fiscal year 2026–27. US battery technology company Lyten plans to acquire all assets of Northvolt in Sweden and Germany, valued at $5 billion. LG Energy Solution (LGES) and CATL are expanding production capacity, and PowerCo's battery manufacturing is expected to commence this year in Salzgitter, followed by Spain next year.

The EU has also begun to step up policy support, recently awarding €852 million in grants to six battery cell manufacturing projects — including those from ACC, Verkor, Cellforce, Leclanché, Novo Energy and LG Energy Solution.

However, structural weaknesses remain. EV battery production in Europe has largely been driven by OEMs trying to reduce supply chain, geopolitical and transport risks — rather than by coordinated government policy. That is why many European automakers are willing to pay a premium to source batteries locally.

But without stronger policy support, Europe’s battery makers remain exposed to low-cost Chinese imports, especially with minimal tariffs. To stay competitive with China’s gigafactories, Europe must move beyond voluntary action and:

• ramp up direct incentives for local production,
• invest in LFP cell capacity, not just NMC,
• strengthen trade policy, and 
• accelerate permitting and site development.

As demand shifts toward lower-cost LFP chemistries, major EU battery players like ACC and PowerCo are rethinking their nickel-heavy strategies. However, since most LFP cells still come from China — and Chinese firms like CATL are expanding within Europe — reliance on Chinese battery tech may persist, or even grow.