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Insight: Stung by Asian dominance, Germany pours cash into EV battery ventures

Reuters  |  BERLIN 

By Michael Nienaber

(Reuters) - has earmarked 1 billion euros ($1.2 billion) to support a consortium looking to produce battery cells and plans to fund a research facility to develop next-generation solid-state batteries, three sources told

The measures, expected to be announced next week, are designed to reduce the dependence of German carmakers on Asian (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 supply chain is particularly important for as it has become so economically dependent on the success of its industry.

But Germany's 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 Angela Merkel's fractious ruling coalition, the plan is also a way to show voters ahead of three elections next year in eastern that it can get its act together to help Europe's largest economy thrive in the era.

"We have a concentration of risk in the automobile sector. The industry is too dependent on the combustion engine," Deputy told "The government therefore wants to help the sector in its efforts to diversify."

Hirte said was in talks with several companies and other governments in 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 for Eastern German affairs and for small- and medium-sized enterprises policy.

"One thing is clear: you cannot ignore 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 about building a factory include German Microbattery, and Ford's German subsidiary Ford-Werke GmbH, three people familiar with the matter told

A for said it would attend a meeting with Altmaier next week. and declined to comment.

specialises in batteries for hearing aids and for solar It said last month it was studying the production of large lithium batteries and was in intensive discussions with relevant market actors.

TOO LATE?

Volkswagen's supervisory board is due to discuss its and battery cell strategy at a meeting on Nov. 16. The German carmaker has said in the past that it was studying battery cell production at its plant in

A source told Reuters on Thursday that the board would discuss a far-reaching alliance with South Korean

Some analysts say is already too far behind in the race with Asian firms, at least with the current technology.

(BCG), for example, has estimated global battery cell production capacity will exceed demand by about 40 percent in 2021, exerting massive pressure on prices and making it hard for new entrants to make money.

South Korea's is already supplying some German carmakers with EV batteries made in while and are planning factories in

The announcement by the world's biggest EV - China's Ltd (CATL) - that it would build its first in and has struck a deal with German carmaker has been welcomed by the government.

But Merkel told business leaders it was "extremely important" Germany also develops its own battery cell capacity to secure the country's role in the

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

Despite BCG's predictions of a glut, analysts at consultants 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 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 and an important part of the That's why we want to locate this in Germany," Hirte said.

EUROPEAN ALLIANCE

Recognising the importance of a homegrown battery industry for jobs and profits, the launched its own is seen as the only serious contender to emerge so far.

As part of Berlin's push, Altmaier is talking to German and European companies as well as neighbouring countries to try to join forces. He is coordinating his efforts with to resolve any state aid and antitrust issues.

"In a few years, will have a competitive battery cell sector that can survive without state aid," Altmaier said in September after meeting the EU's Vice-President for Union Maros Sefcovic, who has been the driving force behind the EBA.

Altmaier is expected to announce more details of his battery cells plan during a two-day conference in starting on Nov. 12 that will be attended by Sefcovic.

The billion euros earmarked for a German battery cells consortium would help establish a first factory, probably in western Germany, two sources familiar with the plans said.

Berlin is also willing to support a second plant, possibly in the Lausitz region near the German-Polish border where two of the regional elections in 2019 will take place, they said.

An said Altmaier was in talks with all relevant parties and no decisions had been made.

In addition, the government wants to spend up to 500 million euros to co-finance a research factory to help put German companies ahead of the curve when solid-state batteries are ready for the mass market, another source told Reuters.

Lithium-ion batteries are likely to be overtaken in a matter of years by solid-state technology that is expected to produce cheaper batteries with higher density.

The location of the research factory has not been decided and the government is about to start a tender process in which authorities and firms can pitch for the site, the source said.

A said the government was supporting efforts to develop solid state batteries by bringing together leading research institutes with the private sector.

Companies involved in the network, known as FestBatt, include Varta, BASF, Volkswagen, BMW, Continental, conglomerate Thyssenkrupp, SGL Carbon, Belgian materials firm Umicore, Coperion, Schott and Heraeus, the said.

For now, German carmakers are sourcing battery cells predominantly from Asian suppliers such as CATL, and Samsung SDI although has struck a partnership with

Underlining the uphill battle German firms face, one of the world's biggest automotive suppliers, Bosch, has opted out of making lithium-ion cells, saying it would be too costly.

Hans-Martin Henning, an at Fraunhofer, is less pessimistic.

"If automakers boost their 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 that are used in lithium-ion cells.

"The landscape will change dramatically in coming years," told Reuters. "Europe absolutely has a chance."

($1 = 0.8719 euros)

(Reporting by Michael Nienaber; additional reporting by Edward Taylor, Ilona Wissenbach, Ludwig Burger and Andrea Shalal; editing by David Clarke)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, November 09 2018. 12:39 IST
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