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The European Union has big plans for the transport sector, as was evident from parts of the Brexit deal signed with the UK on Christmas Eve last month.

The EU has long identified the manufacture of electrical vehicle batteries as a strategic imperative, both to reduce its reliance on foreign technology and to hit its target of getting greenhouse gases to zero by 2050. To achieve this, the EU needs to cut emissions from transport by 90%.

Under the terms of the EU/UK deal, the entire EV battery supply chain must be domiciled within the EU by 2027, if an EV is to qualify for tariff-free trade. It is an ambitious target, but the deal was welcomed by the car industry because the new regime is phased in over a period of six years.

Alessandro Marongiu, a trade policy adviser to the UK automotive sector, said: “The deal deems 40% of EU/UK content is enough for electrified vehicles to avoid tariffs until the end of 2023. For 2024-26, the requirement will be 45%, before jumping to 55% in 2027.”

As regards batteries, the origin rules initially only require that the batteries be assembled in the UK or EU. From 2024, however, the rules become progressively tighter until by 2027 regional content requirement jumps to 70%, including for cathode materials. A measure of the challenge ahead for the EU and UK is that battery production is currently dominated by east Asian companies such as CATL (China), LG Chem (Korea) and Panasonic (Japan).

EU poised to be second biggest market for batteries

The EU calculates that it will become the second-biggest global market for batteries, with a market value of some €250bn by 2025. As part of its European Battery Alliance project, launched in 2017, the EU has already approved €3.2bn for projects involving manufacturers such as BASF, BMW and PSA Group. The effort is also attracting foreign investment, including from CATL in Germany, Panasonic in Norway, LG Chem in Poland, Samsung and SK Innovation in Hungary, and China’s SVOLT Energy Technology, which is investing €2bn to build two factories in Germany.

Essential to the EU’s plans is a regional source of battery grade materials. One company aiming to supply these to a high ethical standard is Euro Manganese [TSXV and ASX: EMN]. Set in the heart of Europe, at Chvaletice in the Czech Republic, and close to several of the current and projected sites for production of EV batteries, Euro Manganese plans to become a strategic supplier of battery-grade manganese products made by recycling the waste from a decommissioned mine. These are essential ingredients for Europe’s lithium-ion car battery revolution and other high-technology applications. China currently produces over 93% of the world’s high-purity manganese products.

UK will need to build its own gigafactories

The UK needs to step up the pace if it is to create an entire supply chain for the manufacture of EV batteries. Mike Haws, chief executive of the Society of Motor Manufacturers and Traders, says the EU/UK deal makes it “imperative that the UK secures investment in battery gigafactories and electrified supply chains”.

One project on the way is Britishvolt, which is planning to float this year and invest £2.6bn for the UK’s first gigafactory in Blyth, Northumberland, where it hopes to be turning out 300,000 lithium-ion battery packs each year by the end of 2023. The factory will use hydroelectric power generated in Norway, delivered under the North Sea through the world’s longest subsea inter-connector, running from Kvilldal in Norway to Blyth.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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