Battery Supply Constraints Threaten European EV Ambitions

Europe's electric vehicle manufacturers face intensifying battery supply bottlenecks as domestic cell production lags far behind demand projections, threatening the continent's ability to meet 2035 combustion engine phase-out targets whilst reducing dependence on Asian suppliers.

Northvolt's financial difficulties have sent shockwaves through the industry. The Swedish battery manufacturer, once heralded as Europe's answer to Chinese dominance, filed for Chapter 11 bankruptcy protection in November, leaving major customers including BMW and Volkswagen scrambling for alternative suppliers. Production at its Ett facility remains substantially below capacity, with quality control issues compounding volume shortfalls.

The setback underscores Europe's strategic vulnerability in battery value chains. Currently, approximately 85 percent of lithium-ion cells used in European-assembled vehicles originate from Chinese, South Korean, or Japanese manufacturers. Brussels' push for localised production, supported by €3.2 billion in state aid approvals, has yielded disappointing results as planned gigafactories encounter permitting delays, skilled labour shortages, and spiralling construction costs.

Automotive executives privately acknowledge that meeting emission reduction commitments without reliable battery access appears increasingly improbable. Stellantis recently extended partnerships with CATL and LG Energy Solution, effectively conceding defeat in near-term supply localisation efforts. Mercedes-Benz follows similar patterns, prioritising production continuity over strategic autonomy.

The situation presents particular difficulties for smaller manufacturers lacking negotiating leverage with established suppliers. Premium brands command preferential allocation, leaving volume producers exposed to spot market volatility and longer lead times.

Industry analysts warn that battery constraints, rather than consumer demand, may ultimately determine EV adoption trajectories. Raw material price fluctuations, particularly lithium and cobalt, add further uncertainty to manufacturers already operating under compressed margins.

The European Commission faces mounting pressure to recalibrate electrification timelines against industrial realities, though political commitment to decarbonisation objectives makes policy reversal unlikely despite mounting evidence of implementation challenges.