EU battery supply chains unprepared for new localization rules: Global Mobility

Europe's battery supply chain is not yet prepared to meet the localization requirements envisaged under the Industrial Accelerator Act, with the greatest risks concentrated in upstream materials, battery chemistry and the execution of planned manufacturing projects, according to a report prepared for the European Automobile Manufacturers' Association by S&P Global subsidiary Global Mobility.

Published Sept. 22, the report, IAA Impact Assessment: European Battery Supply Chain Outlook, said the proposed rules would extend the compliance challenge beyond battery-pack assembly to cells, cathode active materials, anode active materials, precursor materials, graphite processing and battery-management systems, where European supply remains underdeveloped.

The IAA said March 4 it would introduce progressively stricter EU-origin requirements for vehicles, batteries and key electric powertrain components.

From 2027, vehicles would have to be assembled in the EU, contain at least 70% EU-origin value excluding the battery, and include at least three EU-origin battery components, including cells. From 2030, the requirement would rise to five EU-origin battery components, including cells, CAM and battery-management systems. Electric powertrains and main electronic systems would also need to reach 50% EU-origin value.

Europe's immediate challenge will be securing enough compliant supply before the requirements take effect. The report cautioned that announced gigafactory capacity cannot be treated as operational capacity because projects face permitting delays, capital constraints, ramp-up problems, low initial utilization and potential export commitments.

Localized net battery-cell supply is expected to fall short of demand during the framework's initial years. The report estimates a potential deficit of up to 150 gigawatt-hours, with incentive-driven demand reaching about 270 GWh during 2026-2028. Localized supply would cover less than half of automakers' requirements at the peak.

The gap is expected to narrow after 2028, largely because demand contracts as private consumer subsidies expire, rather than because European production expands sufficiently. The apparent convergence around 2033 would therefore reflect a smaller market, not a fully developed European electric-vehicle market being adequately supplied.

Upstream materials pose largest risk

CAM is the principal bottleneck for compliance with the 2030 requirements. Domestic CAM supply is expected to cover only about half of demand by 2030, even under the report's lower Public Core scenario. AAM presents an additional upstream risk, while a limited battery-management-system supply could also constrain the number of qualifying vehicles.

The report also identifies a mismatch between planned European production and the region's expected chemistry mix. Of 18 planned European gigafactories, 13 are focused on nickel-manganese-cobalt chemistry. However, lithium-iron-phosphate batteries are projected to account for about 40% of EU27 vehicle production by 2036.

European LFP capacity is lagging, leaving automakers reliant on established global suppliers, primarily in China. Only two EU plants have LFP production capability, while three of the five LFP-capable plants expected by 2032 are Chinese-owned.

Cost complicates localization

European-made cells carry a cost premium of up to 26% for NMC and 33% for LFP compared with lower-cost global imports. Automakers must therefore balance compliance with vehicle affordability and profit margins. Chinese suppliers retain advantages in scale, sourcing, process maturity and cost competitiveness, including at plants located in Europe, the report showed.

The final impact of the IAA will also depend on detailed rules covering EU origin, content from free-trade and government-procurement partners, vehicle assembly in partner countries and the application of a disproportionate-cost provision.

The report concluded that Europe's preparedness cannot be measured by planned cell capacity alone. Compliance will depend on projects becoming operational on schedule, output matching local demand and chemistry preferences, and the development of sufficient capacity across the upstream value chain. Without faster progress in CAM, AAM, graphite processing, LFP technology and battery-management systems, Europe could expand its battery manufacturing footprint without securing enough cost-competitive, compliant supply.

Platts, part of S&P Global Energy, assessed CIF Europe battery-grade lithium carbonate at $18,500/metric ton Sept. 21, stable day over day and down $700/mt week over week. Lithium hydroxide was also assessed at $18,500/mt, unchanged day over day and down $700/mt week over week.