Wide Angle Shot: EV battery production & charging infrastructure EU & CEE

Global EV sales grew at an average annual rate of 53% between 2015 and 2023 reaching almost 14 mn units — up from only 450 ths units. Especially the period between 2020 and 2022 saw massive growth rates supercharged by government subsidies. However, for quite some time, the EV growth (outside of China) has stalled as there are still numerous road blocks along the way that need to be resolved. Those range from the price premium of EVs vs internal combustion engine cars (ICE), to an insufficient range and a massively undersupplied market for public charging infrastructure. Against this background as well as reduced or completely phased-out government subsidies, BEV (battery electric vehicles) and PHEVs (Plug-In Hybrids), which taken together are widely regarded as EVs (= Electric Vehicles), recorded negative ytd growth rates inside the EU for 2024. A similar, albeit less negative picture, is evident in the US where EV sales grew only 6% yoy in H1 2024. That said, the US falls well behind in terms of EV share at about 8-9% vs 19.5% in the EU throughout the first seven months in 2024. As of now 2024 has been the year of Hybrids, which have enjoyed strong demand and were the only car segment in the EU to show positive yoy growth rates to date. China, on the other hand, remains an exception as the EV share continues to increase, having reached 50% in August.

Despite the mentioned headwinds, EV sales are expected to continue to grow albeit at a much slower pace than we have seen over the last years with an CAGR of 10-11% over the next decade. This will put the EV share at around 75-85% depending on the market with the Nordics, Europe and China leading ahead of the US and other markets.

This forecast already clearly shows that e.g the EU is not on track to achieve the -100% CO₂ emission target by 2035. In fact our calculations show that EV sales in the EU will have to grow at an annual rate of close to 16% in order to reach the 2035 target which is basically the level of the past two years and therefore not impossible. At current yoy growth rates, however, the EU would reach an EV share of only 22% in 2035, which is basically unchanged from now and implies a massive undershooting compared to ambitions. The same holds true for the US, while China easily exceeds their target if the current pace is maintained.

So, while the EU is facing an uphill battle, the transition is possible. The best example is Germany, where subsidies drove EV registrations in 2021 and 2022 before being phased out. We believe the EU and member states will have to re-consider implementing subsidies until the price differential between EVs and ICE models reaches parity in order to stimulate demand. Volkswagen (VW) for example expects to reach margin parity for most models in 2026. And even though several car producers have recently revised their EV guidances or production targets (e.g. Ford, VW, GM, Toyota, Mercedes Benz), EVs will most likely be part of the future car markets given global decarbonization ambitions.

Considering the increasingly harsh global trade and geopolitical constellation, with countries and regions trying to become less dependent on each other, this also implies that battery cell production capacities and related dependencies should move in the spotlight in the EU. The geopolitical competition between the economic blocs (USA, China, EU) is also taking place in the areas of future key technologies, where it is not only about reducing dependencies, but also about the technical global leadership (and possibly associated soft power aspects).

For example the Net Zero Industry Act aims to scale up manufacturing of clean technologies in the EU and sets a target of reaching capacities that cover 40% of the EU's annual deployment needs for clean technologies (wind and solar power, heat pumps etc.) by 2030. For EV batteries, the EU targets 550 GWh in manufacturing capacity which corresponds to 90% of the Union's expected annual demand by 2030. Such ambitions have the potential to shake up the long-standing status quo in the European automotive production industry, where the CEE region in particular stands out as a major hub.

But let's take a brief step back and take a look at the current state. At the moment, China is not only dominating the global EV car market itself, with EV exports lately surging, but is also the key player when it comes to the global battery value chain — from mining and refining of raw materials, manufacturing of components and final battery cell assembly/production. While China's share of global Lithium-, Cobalt- and Nickel mining is relatively low, the refining capacity shares range from 30-80%. Component manufacturing is almost exclusively located in China and for the two currently most dominant battery technologies — LFP and NMC/NCA — China holds a market share of 99% and 55% respectively for fully commissioned plants. This leaves the rest of the world including Europe and the US quite exposed.

The picture changes somewhat when one takes into consideration plants that are currently either under construction or announced. For LFP's, China's market share shrinks to 85%, still far ahead of the US, Morocco, Slovakia or India with about 2-6%. The market is more balanced for NMC/NCA, where China's share falls to 29%, behind the US with 31%, Germany at 21% and France and Sweden finishing up the top 5. The quite obvious difference between LFP and NMC/NCA shares results from the higher popularity of the latter in Europe and the US given the higher energy density and range. China on the other hand, utilizes the LFP technology which is cheaper albeit at the disadvantage of lower energy density and therefore range. It is expected that NMC production will be the dominant form in the US and Europe, while China will continue to account for the largest share of LFP production. With China playing a dominant role globally it should come to little surprise that among the ten largest battery cell producers, all but one (South Korean based LG Energy Solutions) are out of China.

Currently, there are 233 GWh of capacity fully commissioned in the EU, led by Poland which hosts about 54% percent, Hungary at 20% and Germany at 10%. Combined, the EU accounts for 8% of global capacities. About two thirds of these capacities are owned by non-EU companies with South Korean based LG Energy Solutions and Samsung SDI accounting for about two thirds. German based BMZ, Swedish Northvolt and French Automotive Cells — a joint venture between Mercedes Benz, Stellantis and TotalEnergies — come next for a total of about 25%. However, the weak footing on which the EU's current battery cell production capacities are on, is evident with Northvolts recent struggles. The Swedish producer is laying off staff and closing plants for the production of battery cell components like cathodes. It also intends to sell property, where a new factory was supposed to be built — a major setback for a company thats among the biggest hopes for the EUs capacitiy targets, is backed by major players like VW (21%) and Goldman Sachs (19%) and was even discussing an IPO. It cites a weaker than expected EV market growth among the reasons. Hence, the current weaker EV adoption could have long term implications for the EU's battery supply chain security as planned capacity expansions/constructions might be postponed or canceled altogether amid planning uncertainty. This would put the EU further behind on the schedule and threaten their independency or at least capacity target by 2030.

Even though roughly 1,200 GWh are currently estimated to come online between now and 2030 based on either announced sites or plants being already under construction, the global share of battery production based in the EU would still only rise to 10% from 8% now. However, the share of non-EU owned companies will fall to roughly 50% by 2030. Among the largest EU owned producers will be Automotive Cells, Northvolt but also automotive players like VW and BMW. LG is expected to remain the leader albeit with only 11% share down from the dominant 49% currently.

From a country perspective, there will be a shift as to which EU countries will be hosting the majority of capacities. Poland's share is set to decline to 12% by 2030 as there are only 47 GWh expected to be added currently. In contrast, the pipeline in Germany (314 GWh), Hungary (213 GWh), France (238 GWh) and Sweden (94 GWh) is packed. As a result, Germany's share is expected to rise to 24% from 10%, establishing itself as the leading battery producer in the EU, ahead of Hungary and France (both 18%) and Poland 12%. Slovakia's share is set to rise quite substantially from 1% in 2023 to about 7% by 2030 as well. As things currently stand Czechia and Romania on the other hand may fall behind as currently no further EV battery production capacity additions are planned in both countries. Overall, the sketched trends may induce some shifts to the current status quo when it comes to the regional automotive hub landscape in the EU.

The automotive cluster of Central and Southeastern Europe accounts for approximately 25% of the EU's automotive production and contribute substantially to the EU's total automotive gross value added, as those two are closely correlated. Therefore, the transition to EV in Europe, which the EU is strongly promoting, has a strong transformational effect. This also applies to regional labor markets and social stability. After all, well over 10-15% of industrial employees in the region work in the automotive sector led by Slovakia (15.5%), Romania (14.5%) and Czechia (13.4%). This is well above the EU average of 8.1%. In addition, 70-80% of these employees work in the parts and components sector. It is precisely here that the concentration of value creation on the battery in the case of EV mobility trends threatens to lead to drastic job cuts in the long term — in a scenario without adjustments.

This makes it all the more important for the region to establish battery production facilities on the one hand, while at the same time ensuring attractive framework and employment conditions in other related sectors (e.g. chip and IT sector, software development). In addition to battery production, it is also important to be able to keep research and development capacities in the automotive sector in the country in the long term (as it is the case in Czechia and Romania, for example). Of course, this also means that job requirements and job profiles are changing, which is also a challenge for economic and educational policy.

At present, pragmatic cooperation with Chinese and other Asian companies and players can certainly be observed in the Central European region. Examples range from existing battery capacities in the EU, such as Poland, hosting an EU wide leading capacity of 125 GWh (54% of currently available capacities, attributable to LG Energy Solution) to planned EV production plants by BYD in Hungary. Also in Austria, Magna Steyr is reportedly discussing partnerships with Chinese EV producers.

Apart from political considerations, this commitment can be seen as an economically rational strategy to maintain regional automotive clusters, while European industry may not always be able to offer the leading and/or cost-effective solutions here. The current problems of German carmakers in relation to their main core production plants at home can only serve as a warning here. In addition, the establishment of battery factories can give rise to new automotive clusters or help existing ones to realign themselves. A market entry of Chinese/Asian producers that is linked with strategic and industrial policy measures (e.g. coupled with local sourcing and/or employment conditions) can certainly be seen as a conscious part of a location policy. Moreover, such capacities can still reduce the geoeconomic dependency compared to a pure import scenario. As things stand now and without Chinese/Asian battery capacities, the EU would fall short of their 550 GWh battery capacity target by 2030. Not to mention the fact that regional foreign-owned battery production facilities could also help to balance out trade relations between the CEE region and China (i.e. less imports, possibly some exports). Having outlined the expected development of battery capacity clusters and the current importance of CEE countries for the automotive industry, but also vice versa in terms of employment we currently see Czechia and Romania as comparably more exposed to potential risks of changes to the local automotive clusters stemming from the EV transition. In addition, to maintain and further develop the automotive cluster, it is of course important to remain competitive in terms of energy prices. In this context, the outlook for more nuclear energy in nearly all CEE countries fits well. (see our Green Deal publication)

However, we think that combustion engines will continue to be produced in the CEE region for some time to come. After all, demand for such engines will probably continue on the world market for much longer than it will in the EU given its pioneering EV role. In addition, the EU could revise its e-mobility strategy again in the medium term, even though this is not our base case as precisely this pioneering role would result in substantial reputational damage for the EU if they abandon its e-mobility strategy, having advocated for its ambitious climate targets (Green Deal etc.) for some time. Rather we believe purchase subsidies could again boost EV adoption, as we have outlined earlier at the example of Germany, until EV prices come down. In addition we believe investments into EV charging infrastructure, as discussed later, via channels like the NGEU funding and on a national level are necessary. That said, we could see some adjustments, though not a full abandoning, to the targets to allow automotive producers more time, especially as stricter CO₂ fleet targets are looming for 2025 at a time when EV sales are stalling. However, for now the EU seems to stick with their targets. We also highlight that the 15% target for 2025 is comparably easier to achieve as opposed to the 55% target in six years from now.

The expected additions should take the EU capacity to 1,400 GWh by 2030, which is well above the EU's target of 550 GWh formulated as part of the Net Zero Industry Act. This target is based on the estimate of covering 90% of the EU's annual demand in 2030. We used expected EV sales in Europe and the forecast for global Li-ion demand to forecast Europes demand, which is roughly in line with the target of the Net Zero Industry Act at about 550 GWh although for 100% demand. Clearly, for both cases the 1,400 GWh would easily exceed the target and therefore estimated demand. However, if we assume an underutilization, in line with the average for automotive plants over the last 10 years at about 75%, the oversupply already dimishes quite substantially. Taking further into account a continuation of past trade patterns, that is the EU being a net exporter, capacities would barley meet demand up until 2030.

However, over time new battery capacities could be announced, increasing expected name plate capacity by 2030. The EU and the US are currently discussing a critical minerals agreement, with the aim that EU produced batteries and EVs qualify for subsidies under the IRA (Inflation Reduction Act). So far the talks yielded no results, and in light of the election year (EU/US), an agreement is anything but certain. However, if successful, the EU's status as a EV/battery production location will be supported, which could lead to increased investments by companies.

As touched upon before, among the important pre-requisites for a successfull EV roll-out is an appropriate EV charging infrastructure (EVC). That is because the average range of EVs currently still falls well below that of comparable internal combustion engine cars (500 km vs 1,000 km), which means a higher density of EVC is required. Without a wide spread charging infrastructure, the EV roll-out will likely be impaired. This can be seen, when comparing the BEV registration share as % of total passenger car sales by EU country and the public charging points per 1,000 residents, which illustrates a clear positive correlation.

However, it will also be necessary to have a equally distributed EVC across Europe, which allows people to travel without restrictions. The Alternative Fuel Infrastructure Regulation, which aims at providing a sufficient EV charging infrastructure across the EU and especially along the TEN-T roads (every 60 km) should support the roll-out. Currently, the EVC is quite concentrated though, with 59% of the EU's total charging network located in only three countries (Netherlands, Germany France). CEE countries on the other hand are lacking appropriate infrastructure with a EVC intensity ranging from 0.14 in Romania to 0.46 in the Czech Republic. Therefore, their BEV share is also among the lowest in the EU ranging from 3% to 11%. This compares to a ratio of 1.45 in Germany or 1.6 in France. The Nordics are well ahead with ratios of 3.91 for Denmark and 3.61 for Sweden. The Netherlands lead the EU countries at 8.12. The EU wide average BEV share in 2023 was 22%.

But not only the country specific EVC is lacking behind, even from an EU wide perspective, the public charging infrastructure roll-out needs to pick up substantially over the coming years in order to meet the expected EV demand by 2030 and support the EU's 55% CO₂ reduction goal. The EU commission estimates that by 2030, 3.5 mn public charging points will be needed, that equals an annual installment rate of roughly 400 ths units. This compares to roughly 150 ths units which were installed in 2023 and a total of 640 ths available public charging points as at YE 23. This clearly shows the uphill battle the EU is facing. Even more so as roughly 87% are slow chargers. The ACEA, the European Automotive Association, even estimates a total of 8.8 mn units by 2030 for an annual installment rate of 1.2 mn units. Therefore, we would expect decent support to charging structure investments on behalf of EU institutions and/or European IFIs in the coming years.

With the need to invest heavily in the public charging infrastructure to support the EV roll-out and the EU's 2030 targets, and the lacking infrastructure in several CEE countries, we took a look at the planned NGEU investments to identify which CEE countries have the most favorable environment for EVC investment going forward. The main pillar of the NGEU program — a temporary recovery instrument to support Europe's economic recovery — is the recovery and resilience fund (RRF), which offers grants and loans to support reforms and investments. The EU expects to raise EUR 712 bn on the bond markets to finance the RRF until 2026 — when projects supported via the NGEU/RRF have to be implemented. Currently, EUR 338 bn in grants and EUR 291 bn in loans have been committed. The EU requires that national recovery and resilience plans have to allocate at least 37% of their funds to green measures including, but not limited to e-mobility and hence charging infrastructure.

All CEE countries exceed the 37% with the average green share being 49%. And while countries like Croatia, Poland and Romania have below average green shares, they actually lead the CEE countries when it comes to committed funds for the green transition, with Croatia leading at a 5% share of GDP, ahead of Romania (3.9%) and Poland (3.7%). In absolute numbers, Poland (EUR 28 bn) and Romania (EUR 12.6 bn) clearly stand out. Even though the program runs only until 2026 and entered into force by 2021 (but looking back until 2020), the majority of committed funds is yet to be received, which implies that the most of the roll-out has yet to happen.

Since green projects include e.g. energy efficiency, renewable energy or circular economy related projects in addition to e-mobility (which in most cases includes EVC), it is warranted to dig a little bit deeper. Slovenia (42%), Romania (33%) and Slovakia (24%) invest the highest share of their committed green funds towards e-mobility.

This changes the previous picture somewhat with Romania actually taking the lead in terms of e-mobility investments relative to GDP (1.3%), ahead of Slovenia (0.9%) and Croatia as well Hungary both with about 0.8%. Poland slips to only 0.6% of GDP due to its comparable low e-mobility share of 17%. From an absolute perspective, Romania and Poland still invest the highest amount based on NGEU funds.

There are also quite a few national level projects in place across the CEE space. Here we consider Poland and Romania to be among the most ambitious. E.g. the National Fund for Environmental Protection and Water Management will invest PLN 870 mn to expand its charging infrastructure by 17.8 ths until 2028. This compares to currently only 6 ths charging points. In addition, focus will be exclusively on fast charging points (>22kW). However, even then the annual installment growth rate for Poland falls behind the ACEA's target of 45% yoy growth until (CAGR 2023-2030) at 31%.

Hence, we conclude that Romania and Poland should see a comparably greater growth rate / EVC roll-out in the years to come as investments exceed other CEE countries. Both countries are in fact trailing other EU countries in terms of charging points per 1 ths residents currently, which further supports our argument as EVC intensity correlates with a higher BEV share.