BERLIN (Reuters) - Germany has earmarked 1 billion euros ($1.2 billion) to support a consortium looking to produce electric car battery cells and plans to fund a research facility to develop next-generation solid-state batteries, three sources told Reuters
The measures, expected to be announced next week, are designed to reduce the dependence of German carmakers on Asian electric vehicle (EV) battery suppliers and protect German jobs at risk from the shift away from combustion engines.
Berlin’s push to shape industrial policy marks a break with its generally “hands off” approach to business decisions and is part of European efforts to forge battery alliances to counter the dominance of Chinese, Japanese and Korean firms.
Ensuring local companies are involved throughout the electric vehicle supply chain is particularly important for Germany as it has become so economically dependent on the success of its car industry.
But Germany’s car battery push could be too late. Asian market leaders are ramping up output and some experts say there’s a risk of a glut that could hinder the establishment of large-scale battery cell production by European newcomers.
For Chancellor Angela Merkel’s fractious ruling coalition, the plan is also a way to show voters ahead of three elections next year in eastern Germany that it can get its act together to help Europe’s largest economy thrive in the electric car era.
“We have a concentration of risk in the automobile sector. The industry is too dependent on the combustion engine,” Deputy Economy Minister Christian Hirte told Reuters. “The government therefore wants to help the sector in its efforts to diversify.”
Hirte said Berlin was in talks with several companies and other governments in Europe to support a battery cell factory.
“There are possibilities for example in the Lausitz region, maybe in cooperation with Poland,” said Hirte, who is the government’s coordinator for Eastern German affairs and for small- and medium-sized enterprises policy.
“One thing is clear: you cannot ignore east Germany if you are planning such mega projects. There is a lot of space and the acceptance among the population is great.”
Companies involved in talks with Economy Minister Peter Altmaier about building a factory include German battery maker VARTA Microbattery, chemical giant BASF (BASFn.DE) and Ford’s (F.N) German subsidiary Ford-Werke GmbH, three people familiar with the matter told Reuters.
A spokeswoman for BASF said it would attend a meeting with Altmaier next week. Varta (VAR1.DE) and Ford declined to comment.
For years, German car bosses have been reluctant to push ahead with electric cars, instead focusing on diesel engines. But they now face a challenge to make combustion engines comply with tougher emissions rules introduced following the emissions cheating scandal that engulfed Volkswagen.
Despite BCG’s predictions of a glut, analysts at consultants McKinsey & Company and Germany’s Fraunhofer Institute say there will be room for European newcomers as demand is likely to outstrip supply when automakers ramp up EV production.
German carmakers have warned, however, that jobs could disappear - because it takes less time to build electric cars and as positions shift overseas to foreign battery makers.
Germany’s VDA auto industry association has said a ban on combustion engine-powered vehicles in 2030 would threaten 436,000 jobs at car companies and their suppliers.
“Battery cells are a key technology and an important part of the value chain. That’s why we want to locate this in Germany,” Hirte said.
For now, German carmakers are sourcing battery cells predominantly from Asian suppliers such as CATL, LG Chem and Samsung SDI although BMW has struck a partnership with Northvolt.
Underlining the uphill battle German firms face, one of the world’s biggest automotive suppliers, Bosch [ROBG.UL], has opted out of making lithium-ion cells, saying it would be too costly.
Hans-Martin Henning, an electric mobility researcher at Fraunhofer, is less pessimistic.
“If automakers boost their electric car production to 10 to 20 percent of total sales in coming years, Europe will need battery cell factories with more than 100 gigawatt hours,” he said, well above the capacity planned by Asian producers so far.
“We’ll need far more battery cells in Europe - and this must happen pretty fast indeed,” Henning said.
The expected shift to solid-state batteries could also make European suppliers less dependent on the rare earth resources largely controlled by China that are used in lithium-ion cells.
“The landscape will change dramatically in coming years,” Porsche CEO Oliver Blume told Reuters. “Europe absolutely has a chance.”
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