The Falling Cost Gap Between EU & Chinese Batteries

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New analysis shows why made-in-EU requirements are a sovereignty premium worth paying.

As the European Union is debating whether to set “Made-in-EU” criteria for public funding in the Industrial Accelerator Act, new analysis shows how scale will reduce the current cost advantage of Asian battery makers. Only with Made-in-EU criteria can the industry in Europe scale and learn, which is the critical factor in reducing the cost gap.

Access to batteries, their components and critical minerals is essential for Europe’s economic security and resilience. Battery materials are vulnerable to the same trade weaponisation as witnessed with rare earths, Europe must be prepared.

Without significant action on battery production support or trade defense, using Union Content criteria in the Industrial Accelerator Act (IAA) as a lever for public support is the only option on the table for building a resilient and local battery industry across Europe. This will determine whether homegrown battery makers, such as ACC, Powerco and Verkor, can remain competitive.

Despite the weight of the resilience argument, some in the automotive industry claim that this would make batteries more expensive and undermine their competitiveness.

To address this, T&E has looked at the key cost components of an electric vehicle (EV) and how battery costs would develop were they to be manufactured at scale locally based on IEA and BloombergNEF cost models.

The results show that:

• A substantial share of an EV value chain is already local, with 45% to 70% of the value from key components occurring in Europe.
• Batteries account for the lion’s share of these production costs, ranging from 83% to 86% depending on the carmaker. If these were to be onshored, they would represent over 90% of the additional cost increase, underscoring the central role of batteries.
• While European battery cells are on average 17% more expensive than those produced in the US and 90% more expensive than in China, this gap largely reflects limited economies of scale rather than structural disadvantage.
• With scale-up thanks to policy, the temporary cost differential can be expected to narrow significantly: improved manufacturing efficiency (notably lower scrap rates) and labour proficiency and automation would cut the costs by almost a third. This translates into a cost gap of around $14/kWh for both NMC and LFP chemistries by 2030 from $41-43/kWh today (before incorporating financial aid or tariffs).
• This would translate into an average additional cost for an electric vehicle of €500 in 2030, ranging from €300 to €750 depending on the carmaker. (The impact on the final price may be less due to public incentives.) It should be considered as a sovereignty premium, acting as an insurance policy shielding Europe from geopolitical volatility and supply chain disruptions.

However, the battery cost gap reduction would only happen if consistent Union Content requirements for batteries are introduced. These should only cover strategic sectors at risk of supply chain weaponisation, including upstream components such as precursor materials and attached to all public incentive schemes including existing corporate car taxation. Resilience and security, especially on a continent-wide level, are core tasks for governments, not industry.

To find out more, download the briefing.

Briefing from T&E.