Plans for a European battery supply chain are falling behind. Manufacturer drawn to US

European plans to create a battery supply chain for electric cars that is independent of China are falling behind, as companies turn their attention to the US market thanks to clean energy subsidies. Although the EU has set ambitious targets for mining, recycling and processing the metals essential to decarbonisation, a lack of new funding, high energy costs and local opposition are making them difficult to achieve.

Chris Burns, a former Tesla engineer and current head of leading Australian battery materials producer Novonix, told the Financial Times that the Inflation Reduction Act in the United States is attracting manufacturers from Europe.

Novonix, a company focused on producing graphite, a key battery component essential to the transition to electric vehicles, is currently planning to focus its operations on the US market, particularly because of the attractive $369 billion in incentives included in the Inflation Reduction Act. These incentives, which the EU and UK have been unable to match, also include billions of dollars in new or expanded tax credits for the production of low-emission technologies, with the aim of bringing some manufacturing processes back to the United States from Asia.

"We have always considered expanding into Europe, but financing is becoming the biggest challenge. Our current focus is on a site in Riverside, Tennessee, and opening production at other locations in North America. That should keep us busy until the end of this decade," Burns said.

Novonix plans to produce 20 000 tonnes of graphite a year in Riverside, Tennessee, and subsequently expand its operations in North America to 150 000 tonnes a year.

Burns said Novonix might begin planning a European plant only towards the end of this decade, but even that would depend on potential commitments from carmakers and battery-cell manufacturers to purchase future supplies.

The example of Novonix highlights the challenge Europe faces in building a supply chain without sufficient support, and one that is independent of China, the world's leading supplier of graphite and other raw materials needed for batteries. The anode component of batteries, which is made from graphite, poses a particular challenge, as China controls 75 percent of this supply chain. In October, Beijing also tightened its controls on exports.

Chinese manufacturers are increasingly turning their attention to Europe and neighbouring regions, particularly after the US tightened regulations and restricted China's presence in the United States. Shanghai-based battery materials specialist Putailai announced plans in May to invest $1.3 billion in building a plant in Sweden, while Chinese competitor Ningbo Shanshan is considering a similar investment in Finland.

Europe sets ambitious targets but struggles to meet them

The EU will have to find ways to curb demand, identify substitute materials and form partnerships that can break China's control over mineral supplies, Reuters reports.

The Critical Raw Materials Act (CRMA), which is due to enter into force in early 2024, stipulates that by 2030 the EU should mine 10%, recycle 25% and process 40% of its annual needs for 17 key raw materials.

These materials are essential for vehicle batteries, wind turbine magnets and other clean technologies that the EU wants to manufacture. The CRMA aims to reduce dependence on China, which dominates global mineral processing and has already threatened EU supplies by restricting exports.

Researchers from Belgium's KU Leuven university concluded in a 2022 report that the period up to 2030 would be the most challenging in terms of metal supplies, highlighting risks related to copper, lithium, nickel, cobalt and rare earth elements.

The CRMA also aims to speed up the permitting process for mining. The permitting period for a mine is expected to be cut from the current 10-15 years to a maximum of 27 months, but other obstacles remain.

Eurometaux, Europe's non-ferrous metals association, says Europe has potential but needs cheaper energy and funding. It points in particular to the subsidies offered in the United States, Canada and Japan.

The European Union has eased state aid rules and plans to invest 3 billion euros to support battery production, but this amount is negligible compared with the $369 billion in green subsidies under the US Inflation Reduction Act.

The CRMA also emphasises the need to diversify imports. The European Union has already signed several partnerships, from Argentina to Zambia, and hopes its 300 billion euro global infrastructure investment plan will attract resource-rich countries seeking to diversify their economies and reduce their dependence on China.