The EU is doubling down on efforts to bolster its electric vehicle (EV) industry. On Wednesday, the European Commission (EC) announced a plan to make available 1.8 billion euros ($1.94 billion) to create "a secure and competitive" supply chain for battery raw materials.
While details of the plan remain sketchy as to how the EC plans to allocate the fund, there are clear signs of the protectionist nature of the initiative. In a press release, the EC said that the goal of the plan is "to maintain a strong [European] production base and avoid strategic dependencies." That suggests that the fund will likely focus on EU firms.
Notably, the EC's plan came after the bloc imposed hefty so-called anti-subsidy tariffs against Chinese EVs, drawing firm opposition from China and seriously undermining bilateral economic and trade ties. Many EU companies, including automakers, also oppose the tariffs.
It is understandable that the EU wants to boost its auto industry, which largely dominated the global market for years, but is gradually losing its competitive edge in the new era of EVs. The EC's press release on Wednesday also alluded to this, noting that "the European automotive sector is at critical turning point, challenged by rapid technological changes and increasing competition."
European companies are struggling to make profitable and affordable EVs, particularly due to the high cost of batteries, which is slowing down the progress of the green transformation of the European automotive industry, according to an article by the European Parliamentary Research Service in October.
High prices are the main reason German consumers are reluctant to switch to EVs, a survey commissioned by DPA and published on Sunday found. Sales of EVs plummeted 27 percent in Germany in 2024, according to DPA. EVs accounted for 13.6 percent of total sales in the bloc in 2024, a drop from 14.6 percent in 2023, according to data from the European Automobile Manufacturers' Association.
Yet, the high cost of making EV batteries in Europe is a complex issue that is not expected to be resolved quickly by simply increasing investment in local production. It requires efforts on multiple fronts, including policy, technology, market dynamics and international cooperation. And international cooperation, in particular, is critical to improve efficiency and reduce costs in the EV industry.
Despite significant investments in battery technology research and development in Europe, the region still lags behind Asian companies in large-scale production technologies and processes. Additionally, European battery companies have not yet achieved sufficient scale, resulting in higher production costs. And to build up its production capacity, the EU needs more than just cash, but also expertise and time, in that the EU cannot afford to spend years to build production when the industry is rapidly evolving.
If the EU views China's EV industry in a rational and objective manner, it cannot miss the fact that China is an ideal partner for win-win cooperation, rather than a threat.
China has already established an important position in the global battery raw material supply chain and has consistently maintained an open and mutually beneficial cooperative approach despite the rising protectionism tendency in the bloc. China's battery manufacturing costs are relatively low, and its supply chain is well-established, which could allow it to provide European automakers with more cost-effective battery products, thereby reducing the production costs of EVs.
China is a major producer of lithium batteries and the largest market for battery materials in the world. Over 70 percent of all EV batteries ever manufactured were produced in China, according to data from the International Energy Agency.
Moreover, Chinese officials have repeatedly stressed their willingness to seek win-win cooperation with the EU. And Chinese EV companies have also been actively pursuing cooperation with EU partners, including setting up plants in the bloc. For example, Chinese carmaker GAC is in talks with four EU member states to localize production in one of them, the Financial Times reported on Wednesday.
There is also the argument that the vast Chinese market remains critical for many EU carmakers. So, if the EU earnestly wants to bolster its EV industry, protectionism might not be the right answer.
