EU moves to protect manufacturing from Chinese competitive threat

The move away from relying on the private sector to support European industrial policy is an important development, sparked by competitive pressures from China and elsewhere

The European Union’s (EU) industrial policy is changing in a bid to retain a strong European-based manufacturing sector in the face of China’s growing industrial might. Huge, well-coordinated industrial projects are in the pipeline. Plans for a European auto battery consortium to compete with China are taking shape, with the first consortium set up, and a request made by the French and German governments for the EU to approve state support.

The first consortium to be announced features PSA Group of France, its German subsidiary Opel, French battery maker Saft, Siemens, and Belgian chemicals concern Solvay.

Paris-listed PSA Group is the manufacturer of the Peugeot and Citroen brands, and the enterprise acquired Opel from General Motors in 2017. Saft is a 100-year-old French company producing a range of batteries for industrial applications, and was acquired by oil major Total in 2016.

France and Germany have together earmarked 1.2 billion euros (US$1.34 billion) to support this first consortium, with more funding to follow for other groups. The goal is to reduce European carmakers' dependence on Asian suppliers, and also to help EU firms carve out a market presence in a huge new industrial sector, propelled by the climate change-induced switch away from petrol engines to cleaner forms of energy.

State support is generally not allowed in the EU, and is subject to clearance from Brussels. Therefore, the EU Battery Alliance represents a significant policy shift towards an industrial strategy, and away from a traditional free market approach of relying on the private sector to drive strategic decisions.

The search for an EU battery strategy is a direct response to the competitive threat from China.

The European project for the production of batteries for electric cars was officially launched on May 2 in Paris, when German federal minister for economic affairs and energy Peter Altmaier met with his French counterpart Bruno Le Maire and EU Commission vice president Maros Sefcovic.

"This is an important stage in European economic history, which shows that Europe can build its economic and technological sovereignty and is not dependent on the US and China," Le Maire said at the launch. Altmaier added that "Saft-PSA is the first, further consortia will follow."

In February, a Franco-German Manifesto for Industrial Policy was launched, when Altmaier and Le Maire met in Berlin. 

The two ministers renewed the call to the next European Commission for a European industrial strategy. Elections for a new EU Parliament will take place at the end of this month. A new Commission will be appointed by the autumn. 

The manifesto makes specific proposals for the establishment of the necessary policy environment for a strong European industrial sector, covering considerations such as competition and state aid law, as well as innovation policy.

The idea of funding key enabling technologies and strengthening entire value chains in order to enhance German and European competitiveness is also to be found in the draft of the National Industrial Strategy 2030 put together for Germany by Altmaier. And in December 2018, Altmaier and Le Maire published ideas on industrial policy in a joint press statement, and agreed on a paper regarding the funding of battery cell manufacturing in Europe.

In February, Altmaier said that a European industrial strategy was needed to make industry fit for tough global competition. "This will be an important task for the Commission after the European elections. It is vital to provide targeted funding for key innovations, to create the right policy environment in areas like competition law, and – where necessary – to protect our key industries. We are talking about very specific cooperation: following the microelectronics project, we now also want to launch and support a European consortium for battery cell manufacturing. We need competitive, innovative and environmentally-friendly battery cell manufacturing in Germany and Europe. In future, battery cells will account for a large proportion of value creation in the automotive industry – we have to play a part in this.”

The economy ministries of both countries recently sent a letter of intent to the European Commission, and are now waiting for the go-ahead for state support to be given. 

According to German press, the PSA/Saft alliance is planning to convert an Opel factory in Kaiserslautern, which lies close to the French border. There will also be a factory in France, and the initial pilot factory will be located in France.  

On April 30, the third political meeting under the European Battery Alliance took place in Brussels. Commission vice-president Sefcovic said after that meeting that the respective ministers were very clear about their resolve to prioritize the establishment of a strategic battery value chain in Europe –and therefore to speed up and step up coordinated support for strategic transnational projects across the supply chain.

Large-scale integrated consortia are being established across all segments of the EU value chain. These include:

  • Raw materials: Sweden, Finland, Portugal
  • Chemicals: in cooperation between Belgium and Poland as well as between Germany and Finland
  • Battery cells production: Sweden, France, Germany, Italy, the Czech Republic.
  • Battery pack, software, machine tools and engineering: the automakers in Germany, France, Spain, Slovakia.
  • Recycling: Belgium, Germany.

"I can tell you that our non-European competitors are getting worried,” Sefcovic commented after the meeting. “But at the same time, we cannot be naive, as we are catching up slowly. So, we have agreed to act even faster."

More member states are now showing interest in joining the IPCEI (the important projects of common European interest), said Sefcovic. Moreover, the strategic partnership with the European Investment Bank (EIB) is evolving. In May, a decision will be taken by its board on substantial financing for a giga-factory in Sweden – moving from a pilot line to industrial deployment. This should serve as reference for other investors and future projects.

It was agreed at the meeting that a robust framework needs to be put in place to support so-called "European champions”.

Sustainability requirements and standards should be ready and enforceable when EU mass production starts in 2022-23. And they should cover the entire value chain - not just the recyclability and re-use, but also sustainable and ethical mining, with production based on a low-carbon footprint.

Some remaining gaps in the value chain need to be filled, notably mining and refining. EU companies need to be better supported to invest in sustainable mining and the refining of raw materials - both in the EU and third countries. There are plans to launch a European raw materials investment facility with the European Bank for Reconstruction and Development and the EIB, probably commencing around the end of the year.

Sefcovic said that following recent exchanges with the EU's Chinese partners (while he was attending the recent Belt and Road Forum in Beijing), he is absolutely convinced that the EU needs “to ask for reciprocity in the way our companies are treated”.

"We ultimately want our European champions to be able to integrate into global value chains – the same way our foreign competitors are investing in Europe," he said.

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