[NEWS ANALYSIS] Chinese battery makers threaten Korean lead in EU

Korean battery makers are losing ground in Europe to Chinese competitors who are hot on their heels as they aggressively expand their capacity in the world’s second-largest electric vehicle (EV) market.

Construction is underway on Contemporary Amperex Technology (CATL)'s EV battery factory in Debrecen, Hungary on May 23. [AP/YONHAP]

Korean battery makers are losing ground in Europe to Chinese competitors who are hot on their heels as they aggressively expand their capacity in the world’s second-largest electric vehicle (EV) market.

While Korean manufacturers pivot to North America to meet the Inflation Reduction Act (IRA), Chinese firms like Contemporary Amperex Technology (CATL) and BYD are upping investment in Europe and slowing their investment in the United States as the Biden administration tries to exclude China from its battery supply chain.

Korea’s three largest battery makers — LG Energy Solution, Samsung SDI and SK On — invested nearly $30 billion in North America alone in the past three years either independently or through joint ventures with global automakers.

Their total investment in the European Union (EU) is less than $10 billion during the same period, largely concentrated in Hungary and Poland.

Chinese battery makers invested a total of 3.3 billion euros ($3.5 billion) in building plants in Europe in 2021, accounting for one-third of total foreign direct investments made by China that year.

They are planning to build seven more battery plants in Europe by 2030 to achieve 264 gigawatt-hours of production capacity in total, outpacing Korea's estimated 2030 capacity of about 202.5 gigawatt-hours.

Chinese battery makers held 34 percent of the EU's battery market last year, double from 16.8 percent they held in 2020, according to a recent report by SNE Research.

The combined shares of LG Energy Solution, Samsung SDI and SK On dropped to 63.5 percent from 68.2 percent during the same period.

This is to say, the gap between the two countries' shares of the EU battery market narrowed to 30 percentage points from 51 percentage points in just two years.

LG Energy Solution Chief Financial Officer Lee Chang-sil said though "battery demand in the EU remains sluggish, the growth of the U.S. market will be able to offset it," in a conference call earlier in the year.

CATL's battery plant in Arnstadt, Germany. [REUTERS/YONHAP]

Europe is the home to the world’s second-largest EV battery market after China and ahead of the United States, with demand likely to increase to 1,100 gigawatt-hours by 2030, accounting for 23 percent of the world market.

CATL announced that it will invest 7.3 billion euros to build a 100 gigawatt-hour factory in Debrecen, Hungary. CATL already runs a 14 gigawatt-hour plant in Germany and supplies German automakers Mercedes-Benz and BMW.

The world’s largest battery maker aims to increase its total Europe capacity to 200 gigawatt-hours by 2028, enough to power around 2 million EVs.

BYD is in negotiations with Ford Motor to buy the automaker’s plant in Saarlouis, Germany.

Other Chinese companies including Gotion High-tech, Svolt and Envision AESC are planning to build five factories in Germany, France and Spain by 2030, which will total up to 146 gigawatt-hours of production capacity.

“As it gets difficult for Chinese companies to enter the U.S. market with the passage of the IRA, they are announcing massive investment in the EU supported by the government,” said Kim Hee-young, a researcher at the Korea International Trade Association. “Korean battery makers will be overtaken by Chinese companies if the Korean government and firms don’t actively respond to the situation.”

“To compete with China, the country that already controls 50 percent of the world’s battery market, gaining a presence in the EU is desperately needed,” Kim added. “Whoever wins the competition in the European market will determine the landscape of the global battery market.”

LG Energy Solution researchers check the company's batteries for electric vehicles at its Ochang plant in North Chungcheong. [LG ENERGY SOLUTION]

European carmakers' increasing adoption of LFP, or lithium iron phosphate, batteries creates more opportunities for Chinese companies as they already dominate 95 percent of the cheaper battery market.

Korean companies currently have around 116.5 gigawatt-hours of production capacity in Europe, but they highly rely on the production of nickel, manganese and cobalt (NCM) batteries, a pricier option with high energy density. Exports of EVs with China-made LFP batteries are dramatically increasing, led by Tesla and BYD.

Tesla exported around 7,000 Model 3s equipped with LFP batteries to the EU in 2020. In 2022, it exported 139,800 Model Ys and 131,300 Model 3s, both with LFP batteries, to the EU and Asian markets, which made up around 40 percent of total EV exports in China.

BYD’s EV exports surged 307 percent to 56,000 units in 2022, and its major markets were the EU, Mexico, Japan and Australia.

“With global automakers like BMW, Volkswagen and Stellantis officially announcing they will use LFP batteries, demand for Chinese batteries in the EU will likely increase further,” said Choi Jae-hee, senior researcher at the Korea Institute for International Economic Policy (KIEP).

“In the near future, the share of LFP batteries will possibly surpass NCM batteries.”

LFP batteries accounted for 11 percent of the global EV battery market in 2020. It jumped to 25 percent in 2021, 31 percent in 2022 and will eventually reach 60 percent in 2024, KIEP said in the report.

Rendered image of Samsung SDI's hungary plant [SAMSUNG SDI]

BY SARAH CHEA [chea.sarah@joongang.co.kr]