The European battery manufacturing industry stands at a crossroads after a series of supplier failures, EU gigafactory cancellations and project delays that have significantly slashed the region's planned cell production capacity.

The biggest jolt was Northvolt's bankruptcy, announced in March 2025. Once seen as the torchbearer for the EU’s electric vehicle (EV) battery manufacturing industry, Northvolt’s exit from the scene severely impacted Europe’s ambition of self-sufficiency in this sphere. Since then, other major players, such as Automotive Cells Company, Cellforce and Volvo Group, have also curtailed their plans for battery production in Europe.

Against this backdrop, the Industrial Accelerator Act (IAA) is emerging as a central policy response aimed at stabilizing and reshaping Europe’s battery manufacturing capacity. 

What is the EU Industrial Accelerator Act?

The Industrial Accelerator Act, proposed by the European Commission in early March 2026, marks a decisive shift in the region's industrial policy for critical net-zero technologies, including batteries. The IAA introduces strict “Made in EU” requirements for EV battery cells and their key components to reduce Europe’s dependency on external suppliers, particularly mainland China. These requirements apply to EVs sold in the EU as well as components used across upstream sectors, ensuring that the core of the EV battery value chain is increasingly produced within the EU. 

The proposal embeds EV battery requirements into public procurement and support scheme rules, ensuring that EU public money boosts demand for European-made battery technologies. Government tenders and subsidy programs must opt for EVs and battery systems that comply with EU-origin standards. 

To qualify for incentives or public procurement, new EVs—including pure EVs, plug-in hybrid electric vehicles (PHEVs) with external charging and fuel-cell vehicles—must incorporate traction batteries that contain at least three key components, including the cell, originating within the EU. After three years, at least five main specific components of batteries, including battery cells, cathode active material and battery management systems, should be manufactured in Europe.

Timeline of industrial accelerator act for traction battery

The IAA also places EV battery manufacturing within its list of emerging strategic sectors, subjecting foreign investment to a new approval regime. Investments exceeding €100 million from countries holding more than 40% of global battery capacity—primarily mainland China—must meet stringent conditions, including joint ventures with EU partners, technology transfer commitments, research and development obligations and workforce localization requirements. Foreign direct investment (FDI) must fulfill at least four of the six conditions to gain approval from the government. 

The Industrial Accelerator Act’s impact on the EU’s battery sector

A quick look at the EU Industrial Accelerator Act proposals reveal striking parallels with mainland China's historical playbook for the battery sector to achieve global dominance—particularly local content requirements, fast-track permitting for strategic projects and stringent FDI mandates. Whether these clauses will deliver comparable success for Europe or merely impose costly protectionism remains to be seen, given the region's higher baseline costs and fragmented execution.  

Currently, around 50% of the cells equipped in EVs manufactured in Europe are produced locally. The share is much lower for LFP/LMFP cells compared with the nickel-based ternary cells. With efforts to localize more of the battery supply chain, there is also a growing focus on building up cathode active material (CAM) capacity within the region. S&P Global Mobility forecasts that local production will overtake CAM imports in the region by 2027.

Lithium manganese iron phosphate (LMFP) cell production is also projected to experience a dramatic increase. This represents a significant shift, indicating a growing preference for LFP due to its cost-effectiveness and safety advantages. However, most CAM projects in Europe are for nickel cobalt manganese (NCM), and there have been only a few lithium iron phosphate (LFP) CAM projects announced so far.

According to Ali Adim, head of battery research at S&P Global Mobility, Europe's IAA policy could significantly impact the lower A and B vehicle segments owing to the super-credit incentives for small cars, which are directly linked to compliance with localized sourcing requirements under the legislation.

This mandates a shift toward European-sourced battery cells for these affordable models, promoting regional supply chain resilience but exposing challenges in chemistry alignment and cost competitiveness.  

Ali added: “Specifically, while LFP chemistry is forecast to dominate lower-segment EVs due to its cost-effectiveness and safety advantages, its production remains largely non-localized in China, creating supply hurdles and potential non-compliance risks that could disqualify vehicles from super-bonus eligibility.”

As a result, automakers may be forced to rely on pricier European cells—optimized for NMC or other high-density chemistries—which could drive up pack costs by nearly 20% compared to mainland Chinese LFP alternatives, squeezing margins for mass-market OEMs and potentially delaying affordability targets for entry-level electric cars. 

Europe’s battery manufacturing industry continues to expand

Despite the setbacks and high-profile failures, Europe's EV battery manufacturing industry capacity continues to move forward with new EU gigafactory projects in the pipeline. This includes Contemporary Amperex Technology Co., Ltd.’s (CATL’s) 50-GWh plant, which is expected to begin production in 2028, and the Volkswagen Group’s PowerCo plant, which is expected to start production in 2027 with an initial capacity of 20 GWh, both in Spain.

Apart from CATL, the other mainland Chinese players, CALB and EVE Energy, are building plants in Europe. Although the final impact of the Industrial Accelerator Act on these investments remains contingent on implementation details, EU‑based production could allow these plants to benefit from “Made‑in‑EU” incentives, provided they meet component localization and foreign‑investment conditions. 

S&P Global Mobility expects Europe to build a strong EV battery manufacturing capacity, reaching nearly 950 GWh, at a compound annual growth rate of 31% from 2025 to 2030. It is safe to assume that the IAA will alter these figures by accelerating the pace of capacity additions or reshaping where and by whom the capacity is added. 

Outlook: IAA to shape EU gigafactory capacity and EV battery manufacturing industry

Final implementation details of the EU’s Industrial Accelerator Act are still pending as the March 2026 proposal moves through negotiations between the European Parliament and the Council. We expect key aspects—including incentive eligibility, definitions of “Made‑in‑EU” content and enforcement timelines—to be refined via delegated acts, with the practical impact likely to vary across member states during the phased rollout from around 2027. 

The EU’s Industrial Accelerator Act represents both a challenge and a pivotal opportunity for the EV battery industry. While stricter sustainability requirements, localized supply chain expectations and intensified reporting standards will undoubtedly raise compliance pressures, they also create a clearer, more stable regulatory environment that can foster long-term investment and innovation. 

For battery manufacturers and their upstream partners, the Industrial Accelerator Act signals a decisive shift toward a more resilient and environmentally aligned industrial base in Europe—one that rewards technological leadership, circularity and strategic collaboration. By proactively adapting to the proposal’s framework, the EV battery sector can not only secure its position within Europe’s future mobility ecosystem but also help shape a more competitive and sustainable global value chain.

Continue the conversation at The Battery Show Europe 2026

As the EU’s Industrial Accelerator Act pushes European automakers to take a closer look at battery localization, costs, and gigafactory strategy, there’s no better time to meet with peers and industry experts for the inside view. 

If you’re attending the Battery Show Europe, June 9–11 in Stuttgart, meet S&P Global Mobility experts at Hall 3, Booth B56. 

Stop by for live mini‑briefings, rapid analyst clinics, and practical perspectives on chemistry strategy, CAM localization, and compliance under “Made‑in‑EU” rules. 

Register now and connect with us in Stuttgart

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.