Highly Dependent on China’s Supply Chain, Europe’s Push to Localize EV Battery Production Faces Setbacks

2026-03-09 | Calvin

On March 2, it was reported that Europe’s efforts to localize its electric vehicle (EV) industry are increasingly clashing with the economic realities shaped by China’s dominance in the battery supply chain. A series of high-profile battery project cancellations in recent months serves as clear evidence. While EV adoption across the continent is surging, a significant portion of that growth relies on battery materials and equipment sourced from China.

A recent report by Automotive News pointed out that European companies are now realizing just how difficult it is to decouple from China’s supply chain.

Last year, Porsche began scaling back production at its battery subsidiary Cellforce, shifting its focus to research and development. The automaker stated that production was no longer economically viable.

Sweden’s Northvolt, which had once aimed to make Europe a global leader in battery manufacturing, filed for bankruptcy in 2024 due to sustained losses and production-related challenges.

Automotive Cells Company (ACC), backed by Stellantis, suspended plans last month for two battery plants in Germany and Italy. The company said the necessary conditions to launch those factories had not yet been met.

According to Automotive News, one key factor undermining Europe’s battery production autonomy is China’s formidable manufacturing strength, far more mature supply chain, and long-standing state support policies.

A joint statement issued earlier this month by the CEOs of Volkswagen Group and Stellantis accurately captured the current situation in Europe.

Stellantis CEO Antonio Filosa and Volkswagen CEO Oliver Blume said, “We are making substantial investments to build an integrated European industrial ecosystem, which is crucial for our technological sovereignty. However, consumers also reasonably expect affordable electric vehicles. The more we need to reduce prices, the more we must import the cheapest batteries.”

In other words, making EVs affordable is difficult without Chinese batteries. China controls the majority of the global battery supply chain, dominating everything from mineral refining to manufacturing—especially in lithium iron phosphate batteries, the world’s lowest-cost battery technology. China’s industrial scale and excess capacity enable it to produce batteries at lower costs than any other country.

In the United States, however, delays or downsizing of battery factories stem from different causes. The cancellation of the $7,500 tax credit and other regulatory adjustments favorable to EVs have dampened battery demand. U.S. companies such as General Motors, Ford, and Stellantis have either abandoned battery projects or redirected resources toward energy storage rather than EVs. Due to high tariffs, demand for Chinese EV batteries in the U.S. market remains limited.

Nevertheless, the U.S. battery industry continues to mature. Europe’s own battery manufacturing ecosystem is also far from stagnant. Volkswagen Group’s battery unit, PowerCo, has significantly increased output at its Salzgitter plant in Germany, which has an annual production capacity of 20 gigawatt-hours—enough to supply batteries for 250,000 EVs. However, reports indicate that most of its production equipment is still imported from Asia, primarily from China.

Policymakers are attempting to reverse this dependence. Last year, the European Union provided €1.8 billion in interest-free loans to local battery companies under a program called the “Battery Booster.” Europe has also followed the example of the U.S. Inflation Reduction Act (IRA) by introducing domestic sourcing requirements for critical battery minerals.