Challenges Faced by Chinese Battery Companies in Overseas Expansion

Challenges Faced by Chinese Battery Companies in Overseas ExpansionIn the context of the global green and low-carbon transition, Chinese companies in the new energy industry are increasing their overseas investments. Since last year, leading Chinese battery companies such as CATL, Gotion High-Tech, EVE Energy, Envision AESC, Farasis Energy, and REPT have accelerated their steps to "go global." However, as the US and Europe introduce related entry policies, battery companies are facing numerous international regulatory and legal challenges, making overseas expansion much more difficult.

According to reports, SVOLT Energy has canceled its plan to establish a cell factory in Brandenburg, Germany, citing "high volatility in the current automotive market" and the delay of a "major" customer project. Additionally, SVOLT's battery factory project in Saarland, Germany, is also facing repeated delays.

Coincidentally, SVOLT Energy's major customer—Great Wall Motors—also announced the closure of its European headquarters in Munich, Germany. The reasons cited were the imposition of tariffs on Chinese electric vehicle products in Europe and the severe situation in the electric vehicle market.

Is the German Plant Plan Falling Through?

According to the original plan, SVOLT planned to build a cell factory in Lauchhammer, Brandenburg, with a production capacity of 16 GWh per year, scheduled to start production in 2025. This project was an important part of SVOLT's European layout.

Kai-Uwe Wollenhaupt, President of SVOLT Europe and Senior Vice President of SVOLT Energy Technology Co., Ltd., stated: "The global automotive market is facing tremendous volatility, mainly due to the transition to electric vehicles, leading some automakers to make major strategic adjustments."

In the context of weak market demand in Europe and the US, many major car manufacturers announced strategic shifts in the first quarter of this year, slowing down their development of electric vehicles. Traditional multinational car companies such as General Motors, Ford, and Audi have successively slowed down their deployment in the field of electric vehicles; Mercedes-Benz also reported negative news, with its CEO Ola Källenius stating at the annual shareholders meeting: "We will abandon the all-electric vehicle plan."

Data shows that in March, sales of pure electric vehicles in the European market fell by 11% year-on-year. Among them, Germany saw a decline of 29%. With uncertain demand, it becomes more difficult for local battery factories to achieve profitability.

Additionally, trade protectionism from the EU, anti-subsidy investigations against Chinese electric vehicles, and accusations of unfair subsidies reflect the EU's uncertainty about future policies and laws regarding Chinese products. This is one of the reasons prompting SVOLT to make this decision.

Recently, at the G7 finance ministers meeting, US Treasury Secretary Janet Yellen called on the US and Europe to take a "strategic and united approach" to address China's "overcapacity." In response to Yellen's call, European Commission President Ursula von der Leyen quickly responded, stating that the EU would impose "tailor-made" tariffs on China.

Although, according to foreign media reports, the EU has temporarily postponed this decision, the G7 finance ministers stated after the meeting that they will continue to monitor China's "overcapacity" behavior and consider taking measures against Chinese enterprises and products under WTO rules.

In SVOLT Energy's view, the upcoming punitive tariffs, market-distorting policies, and signs of changes in the EU's new energy policies all pose threats to battery production investment.

Besides the factors mentioned above, SVOLT Energy's German plant also faces "localization issues," with severe challenges from local laws and regulations. Therefore, SVOLT's battery factory project in Saarland, which has been in preparation for four years, is also facing repeated delays.

As early as November 2020, SVOLT announced plans to build its European battery module and PACK factory in Saarland, with a planned capacity of 24 GWh and a total investment of 2 billion euros. The project was originally scheduled to be completed and put into operation by the end of 2023. However, four years later, due to planning permit delays and lawsuits against the construction project, progress has still been repeatedly obstructed.

The reasons hindering the construction of SVOLT's project include fire safety, traffic planning, noise, and environmental issues. In other reports, even animal protection laws have become one of the reasons preventing the project's progress.

Reportedly, the proposed site for SVOLT Energy's factory in Saarland is located within a level three water protection zone, making pollutant discharge details an important aspect of discussion and review.

SVOLT stated: "The decision of the Überherrn municipal council is still awaiting approval from the competent authorities, and the planning permit has not yet been granted. Additionally, lawsuits against the construction project have entered legal proceedings. Only with a legal determination can a final economic feasibility study be conducted."

It is reported that during the planning of the two battery factories, SVOLT Energy had already established a comprehensive compliance system for the EU market, such as in the ESG field, and had accumulated significant sunk costs in the European market. Now, under immense pressure, these projects have been abandoned.

A Wake-up Call

The obstacles faced by SVOLT Energy in building its German plant reflect the complexity of the current international market and situation, serving as a warning to other Chinese companies.

Currently, Chinese battery companies have over 25 overseas factory projects, with a total planned capacity exceeding 500 GWh. The projects in the lithium battery industry chain are numerous, with sites spanning Europe, Southeast Asia, and other regions.

In March this year, CATL Chairman Zeng Yuqun stated that the biggest challenge faced by CATL comes from geopolitical issues.

For example, in 2023, CATL's joint battery factory project with Ford faced repeated difficulties from the US side and was suspended at one point.

Additionally, as part of the latest National Defense Authorization Act passed on December 22, 2023, the US will ban the procurement of batteries from CATL, BYD, and four other Chinese companies starting in October 2027.

Under pressure from Congress, Duke Energy in the US plans to stop using energy storage batteries produced by CATL at Camp Lejeune, a Marine Corps base in North Carolina, and will gradually phase out CATL's products in its civilian projects.

It is evident that in countries with unfriendly policies, investing in battery plants and other heavy assets may face significant risks. In light of global market uncertainties, lithium battery companies are also beginning to seek diversified overseas expansion paths.

CATL adopts a dual approach of "light and heavy assets" to actively expand overseas. CATL has built and is planning or constructing a total of eight factories overseas. Reportedly, the company is considering independently building a battery cathode material factory in Morocco to supply its multiple battery factories in Europe.

Currently, CATL has established collaborations with Ford and Tesla and is in discussions with General Motors. CATL stated that the technical authorizations it is currently promoting include various forms of cooperation, such as helping automakers build and operate battery factories, assisting automakers in upgrading their existing battery factories, and collaborating with other battery companies. For example, some European battery companies are considering cooperating with CATL due to the long construction cycle of their production capacities.

Similarly, EVE Energy has opened the US market through licensing fees and plans to invest up to $150 million to establish joint ventures with three American companies, two of which are major truck manufacturers (or their parent companies).

In terms of site selection, China's new energy vehicle industry, including the battery industry chain, has first-mover advantages and industrial chain advantages over Southeast Asia, the Middle East, and other regions. Therefore, Southeast Asia, the Middle East, South America, and Africa may become the next investment hotspots.

Currently, the slowdown in the electrification of the US and European automotive markets is an undeniable fact, but this "slowdown" is temporary. In the long run, the global trend toward automotive electrification is irreversible. As Zeng Yuqun said, "Temporary uncertainty instead provides more opportunities for those with capabilities."

In the rapidly changing international landscape, companies that establish a foothold in overseas markets first will win the "cake."

Amid Global Green Transition, Chinese Battery Companies Face Increasing Overseas Challenges

In the context of the global green and low-carbon transition, Chinese companies in the new energy industry are increasing their overseas investments. Since last year, leading Chinese battery companies such as CATL, Gotion High-Tech, EVE Energy, Envision AESC, Farasis Energy, and REPT have accelerated their steps to "go global." However, as the US and Europe introduce related entry policies, battery companies are facing numerous international regulatory and legal challenges, making overseas expansion much more difficult.