The European Union (EU) is preparing for an industrial transition from internal combustion vehicles (ICVs) to electric vehicles amid a lack of large-scale battery manufacturers rooted in Europe. Once ICV sales are banned in Europe starting in 2035, the long experience of the European automotive industry in developing fantastically high-quality ICVs will become meaningless.
Lucas Bednarski, chief analyst at S&P Global and author of "The Battery Wars," warned in a recent written interview that Europe is abandoning its ICV industry due to the lack of competitiveness in the battery industry. The EU has decided to ban sales of new ICVs that use fossil fuels, such as gasoline, in its 27 member countries starting in 2035.
Bednarski has been analyzing the energy and battery industry markets at S&P Global. He oversees the analysis of the market situation for battery cathode materials, such as lithium and manganese, and over 15,000 institutions and corporations in 150 countries reference his market analysis.
Chief analyst Bednarski noted, "Batteries play a crucial engine role in determining the performance of electric vehicles," adding that "However, startups producing electric vehicle batteries in Europe have either already failed, are in the early stages of battery development, or are facing significant difficulties." The Financial Times (FT) reported on Nov. 17 (local time) that Northvolt, Sweden's largest battery manufacturer, is considering bankruptcy protection (Chapter 11) in the United States due to a financial crisis. Northvolt laid off around 1,600 employees, or 25% of its workforce, in September, and its subsidiary, "Northvolt ETT Expansion AB," filed for bankruptcy in a local court in Sweden in October. Below is the Q&A.
Do you think the European energy industry is facing an innovation crisis?
I think there is no innovation crisis at least in the energy industry. It is true that European corporations are losing global competitiveness due to extremely high energy prices, but this has arisen because of the variable caused by Russia's invasion of Ukraine, not due to an innovation crisis in the energy industry. This crisis is attributed to the sudden transition from natural gas supplied through pipelines to liquefied natural gas transported by ships. Above all, before the Ukraine-Russia war, Europe took the lead in transitioning energy sources to less carbon-intensive natural gas and has shown innovative efforts by increasing the share of renewable energy generation, such as hydropower and wind power. Moreover, recently, Europe has increased investments in nuclear power, with nine EU member states planning to construct new nuclear power plants.
What impact do high energy expenses have on Europe's industry?
There is no doubt that it is bad. Heavy industry, chemical, and steel companies are significantly affected. Not only large corporations but also small and medium-sized enterprises in the manufacturing sector, which supports Europe's industrial competitiveness, have been severely impacted due to high energy expenses.
What should the EU do to reduce energy expenses?
A rapid transition to cheaper renewable energy sources than fossil fuels is necessary. The EU must do everything it can to accelerate the transition to renewable energy sources. There is no shortcut or easy way to achieve this. I believe the EU is on the right path; it just needs to accelerate its efforts. Additionally, it needs to better consolidate the grid to optimize electricity transactions across Europe.
It seems the high energy expense burden has also reduced EU consumers' purchasing power. Were there any efforts to alleviate the burden?
Governments have supported households by capping household energy prices, covering the portions that exceed the cap. The governments have paid the electricity bills that exceed the cap.
Sales of ICVs will be banned in Europe starting in 2035. What is the competitiveness of electric vehicle manufacturing, which can be seen as an indicator of European automotive innovation?
The battery of an electric vehicle acts as the engine of the car. Batteries are not only energy storage devices but also determine the performance of the car. Most major European automotive brands, which have a tradition of over 100 years, are currently using batteries from Korea or China.
From the perspective of the battery industry alone, there exists a significant technological gap between Europe and Asia (China, Korea, Japan). To secure batteries, Europe must especially collaborate with Korea. Europe also has much to offer as a technology research and development partner.
The role of nuclear power will also be important.
According to data from the International Energy Agency from 2023, nuclear power accounted for 19% of electricity production in Europe. This figure is nearly comparable to natural gas (21%) and exceeds coal (17%). In France, the share of electricity production from nuclear power reaches a staggering 64%. I believe France was able to establish energy sovereignty because of its dependence on nuclear power. I see this as a reason why President Emmanuel Macron was able to take a firmer stance against Russia's invasion.
Plus Point
[Interview] Barry Eichengreen, professor of economics at the University of California, Berkeley, noted that "The diminished competitiveness of Europe due to reduced innovation and productivity... it needs to streamline bureaucracy."
The competitiveness that Europe has lies in its highly skilled workforce, with Germany being a representative example.
World-renowned economist Barry Eichengreen from the University of California, Berkeley, recently stated this in a written interview. Professor Eichengreen introduced the report titled "Europe’s Wake-Up Call," published by former European Central Bank (ECB) President Mario Draghi in September.
The Draghi report contains the necessity for the EU to make an annual investment of €800 billion (approximately 1.195 trillion won) to compete with the United States and China in ten key economic sectors, including energy, clean technology, digitalization, advanced technology, and defense.
What difficulties is the European economy facing?
The European economy is struggling with weak technological innovation and declining productivity. Additionally, it faces geopolitical and diplomatic difficulties, such as the Ukraine-Russia war, to the east.
The burden of high energy expenses is adversely affecting the European industry.
Integrating Europe's energy grid across the continent could help resolve issues.
Can Europe enhance its competitiveness by adopting an integrated production model from raw materials to final products, benchmarking China?
It is unrealistic for Europe to benchmark China because it is not self-sufficient in many raw material sectors.
Many point out that the speed of approving new technologies or drugs in Europe is slow.
The approval speed for new drugs or technologies is slower compared to other countries due to strict regulations and strong bureaucracy. Simplifying bureaucracy would help solve the problem.