Europe must invest in and support a continental battery ecosystem: a strategic foundation for industrial and trade balance resilience

Jean-Philippe Hermine

Managing Director

Marine Hautsch

Project manager Critical raw materials & circularity

The battery sector is not only central to decarbonize mobility; it is also paramount for Europe’s technological leadership, trade balance, and economic sovereignty beyond the transport industry. Batteries are a key enabling technology, essential for electrifying industry (heavy industry, defense…) and integrating renewable energy systems. Their strategic value extends across entire supply chains, supporting sectors that are vital to Europe’s green and digital transitions.
A broad range of industrial projects, from raw material extraction and refining to high-quality recycling, depends on the establishment of a competitive battery supply chain in Europe. Without a strong domestic ecosystem, the continent would be exposed to job losses, growing trade deficits, and reduced capacity for innovation and industrial leadership.

1. The cost of inaction: why Europe must invest in battery industrialization

⏺ Domestic skills and innovation capacity : developing Europe’s industrialisation expertise is essential to remain in the race to future improvement or breakthrough development of this recent technology

The sector still holds significant potential for technological advancement (in terms of chemistry of course, but also in production efficiency), but only those who successfully navigate the path to industrialization will fully benefit from the large innovation potential of the technology.
Losing battery manufacturing capacity would mean more than just economic decline, it would result in the erosion of Europe’s control over technological innovation, industrial standards, and critical know-how. At the heart of future competitiveness lies the ability to master industrialization processes and scale them efficiently. If Europe fails to build these capabilities now, it will forfeit the opportunity to harness the significant innovation potential still present in the battery sector.
To ensure success, Europe must provide targeted support to battery projects during their early development and scale-up phases. Recent difficulties faced by some battery manufacturers in Europe highlight the significant challenges involved in the initial industrialization of such a complex process as battery production. Without immediate support to build a strong industrial base, scaling up next-generation battery technologies will become even more difficult, lengthy, and costly. Conversely, investing now in such a foundation will facilitate the emergence, industrialization, and deployment of new-generation battery technologies.
Unlike sectors such as solar photovoltaics, where Europe never established industrial dominance, batteries are deeply integrated with one of Europe’s strongest industrial bases: the automotive sector. In this case, the risk is not simply missing a new opportunity: it is the strategic loss of an existing competitive advantage.

⏺ A significant return of investment and positive trade balance impact if EU succeeds to localize added value in battery production in EU

IMT has recently disclosed its proposal for a comprehensive battery industry boost policy package, enabling an estimate of the public aids necessary to temporarily support the development of a full battery ecosystem. The stakes in terms of GDP, added value and jobs creation are essential to understand the relevance of the effort needed.

In the automotive sector alone, batteries are a central source of value in electric vehicles, representing 30% to 40% of their total added value. As the EU produces around 12 million cars annually, and if we consider an average battery value of approximately €7,000, localising just 50% of battery value by 2032 in Europe (target of the EU’s Battery Booster Package by 2030) would generate around €42 billion in GDP each year. By comparison, the public support needed over five years to scale up the industry is estimated at €5 to €10 billion per year .

Beyond GDP, the battery sector offers major employment potential. According to a recent report by Strategic Perspectives, combining high sustainability standards with European preference mechanisms could result in 449,000 new industrial jobs including 54,000 for battery manufacturing alone by 2035 in Europe¹. These are high-value jobs that contribute meaningfully to public finances through income tax, social contributions, and regional development.

The case for action is also a case against inaction to avoid the erosion of Europe’s global automotive leadership. The EU automotive sector currently employs 13 million people, or 7% of the EU workforce². Failing to build a competitive battery supply chain risks offshoring, delayed investments, and job losses, especially in regions already economically dependent on automotive and battery-related industries. Without strategic intervention, Europe risks losing both its industrial leadership and the socioeconomic stability that depends on it.

⏺ Trade balance and sovereignty: preventing structural deficits and exposure

Trade dynamics further reinforce the urgency. China currently dominates global battery supply chains, accounting for over 70% of cell production and nearly 90% of critical material refining. This structural overcapacity distorts global markets, and without a bold, coordinated, and timely response, Europe risks becoming a marginal player.

This dependence on a single geopolitical player exposes Europe to concrete risks of supply disruptions in case of diplomatic tensions, trade conflicts, or export restrictions, similar to recent shortages experienced in the semiconductor sector.

EU’s foreign trade deficit in batteries has surged from €1 billion to €16 billion over the last 10 years.³ Vis à vis China alone, it has increased from €414 million to €19.4 billion. China excluded, the EU maintains a trade surplus in batteries with the rest of the world, which highlights both the challenge and the strategic opportunity.

2. Conditions for a strong European battery industry

Europe still holds key advantages: a skilled industrial workforce in the parent industry, strong technological capacity, and a tradition of engineering excellence. But transforming these assets into leadership in the battery sector requires a coordinated strategy to overcome the scale-up challenge.

Moreover, developing a European battery ecosystem under stringent environmental and social standards is a critical factor for public acceptance of the growing electric vehicle market. Local production also enables better control of the batteries’ carbon footprint by reducing emissions linked to material transport and product logistics and allows to develop a genuine circular economy for the critical materials that are used in the batteries.

Furthermore, the battery sector drives demand and innovation in related industries including chemical materials, metal refining, and electronic components, generating multiplier effects that could benefit the broader European industrial ecosystem.

Initiatives like PowerCo, Verkor, and ACC show promising momentum for cell manufacturing, yet the ecosystem remains fragile without sustained support. A Gerpisa report confirms that many battery projects launched since 2020 are now struggling with viability, especially as competitors in China and the U.S. scale aggressively with coordinated public and private backing⁴.

To build a resilient and competitive battery industry, Europe must focus on four priorities (see IMT’s Policy Brief for more details on this):

Providing access to low cost decarbonized energy
Accelerating technology transfer and industrial deployment in the EU (including through Foreign Direct Investment whose support would be conditioned)
Providing targeted, time-bound financial support during the early stages of industrial ramp-up, well-sized to bridge the competitiveness gap and absorb the learning curve (including production inefficiencies and waste reduction);
Creating lead markets, initially through public procurement rules or targeted incentives, and progressively through regulatory requirements to incorporate EU-produced materials or components, along with strategic restrictions on waste exports

To be effective, support mechanisms must be designed and deployed at the EU level, not fragmented among Member States. This ensures fair competition within the Single Market and avoids subsidy races. Aid should be linked to broader industrial policy objectives (green transition, energy security, and digital leadership) ensuring policy coherence.

Europe must align its industrial, fiscal, environmental, and regulatory policies around a unified investment strategy. Public support must not be seen as a subsidy, but as a reasonable strategic investment in sovereignty, climate goals, and industrial competitiveness. If it delays, the costs (economic, strategic, and environmental) will be significantly higher and may permanently undermine Europe’s ability to become a player in the sector.

1
Strategic Perspectives. (2025). Lead markets: driving net-zero industries made in Europe. Brussels. Available at: https://strategicperspectives.eu/lead-markets/
2
ACEA (2024) https://www.acea.auto/figure/employment-trends-in-eu-automotive-sector/
3
Pardi, T., Alochet, M., Jullien, B., & Kuyo, A. (2025). Made in Europe. Local content policy for the European automotive industry. Actes du Gerpisa, Gerpisa, 44. Available at: https://gerpisa.org/node/8350.
4
Pardi, T., Alochet, M., Jullien, B., & Kuyo, A. (2025). Made in Europe. Local content policy for the European automotive industry. Actes du Gerpisa, Gerpisa, 44. Available at: https://gerpisa.org/node/8350