Transatlantic Forum on GeoEconomics

Points of Vulnerability in the Battery Cell Industry

An exclusive Policy Brief for the Transatlantic Forum on GeoEconomics 2025 in Brussels

29.09.2025

The exploitation of critical minerals is one of the major points of vulnerability in producing battery cells. | Photo by Pixabay

by Kai Müller and Dr. Sören Pippart

1. Context and importance of the topic

Electric mobility is designed to change our understanding of mobility. There is no doubt that electric mobility will exactly do that, eventually. In the meantime, recent developments have not corresponded to the public’s and industry’s expectations. Sales figures for electric vehicles being lower than expected may be the obvious sign for challenges the European and US automotive industry are facing. The underlying circumstances, however, are that electric mobility and in its core the battery cell industry have increasingly become the focus of global industrial and trade policy.

Unlike Europe and the US, China recognized the strategic importance of battery cells and associated supply chains early on. Consequently, it not only has secured access to critical minerals essential for the production of battery cells. China also commands most of the world’s refining capacities for lithium, cobalt, and natural graphite.

Although later than China, the United States has responded with an equally determined approach. The Inflation Reduction Act (IRA) mobilizes billions of dollars in incentives for clean energy industries. Despite the Trump Administration changing key aspects of the IRA, important subsidies for the battery cell industry remain. Battery cell manufacturers continue to earn production subsidies of up to 45 USD/kWh for battery cells and battery systems if they meet certain requirements. Additional measures taken by the US to secure access to and processing capacities of critical minerals are the deployment of the Defense Production Act and the inception of the Minerals Security Partnership.

Canada, in the meantime, has positioned itself as an attractive location for investments in the battery cell supply chain. Most recently, the Building Canada Act aims to facilitate investments into strategic relevant sectors such as, among others, clean energy and critical minerals. To support this undertaking, Prime Minister Mark Carney has launched the Major Projects Office that “will work to fast-track nation-building projects by streamlining regulatory assessment and approvals and helping to structure financing.”[1]

Europe, in comparison, lags behind. The EU Critical Raw Materials Act of 2023 sets ambitious targets but offers little in terms of concrete measures. Trade agreements with key resource partners, such as Chile, Australia, and Indonesia remain in interim or negotiating state. At the same time, the EU state aid framework does not allow member states to offer output-based production support, while alternative solutions are impeded by legal and budgetary constraints. European companies are left at a disadvantage compared to competitors in China and the US.

The battery cell industry is of strategic importance for Europe. It will be the backbone of Europe’s automotive sector in the future. A sector that employs 12.9 million Europeans and represents 6.5% of EU GDP.[2] Recent challenges are exemplified by Germany’s automotive industry losing 7% of its workforce within the last year.[3] Besides, battery cells are indispensable for the integration of renewable energy into Europe’s grids. Without a domestic battery value chain, Europe risks losing both industrial competitiveness and the capacity to deliver on its climate targets.

With Northvolt and Cellforce having collapsed, European players in the battery cell industry remain scarce. PowerCo, with facilities under construction in Germany, Spain, and Canada, underlines Europe’s ability to act as a transatlantic player. Yet without an enabling framework at EU-level, structural disadvantages remain. In the following, this article focuses on four key aspects of trade points of vulnerability in the battery cell industry, namely, (i) critical minerals, (ii) manufacturing equipment, (iii) clean and affordable energy, and (iv) steel and aluminum. Subsequently, it will discuss policy challenges as well as recommendations, followed by concluding remarks.

2. Trade points of vulnerability

Critical minerals

China’s dominance in the access to and processing of critical minerals creates the single greatest vulnerability. Lithium, nickel, manganese, cobalt, and graphite are indispensable to NMC and/or LFP battery cell chemistries. While deposits are distributed globally, China has secured access to critical minerals at an early stage via corresponding foreign direct investments. Furthermore, processing capacities for critical minerals are very much concentrated in Chinese hands: China refines more than 70% of lithium, 75% of cobalt, and over 90% of natural graphite.[4]

This dominance is not accidental. Chinese firms enjoy access to state-backed financing, rapid permitting, and vertically integrated industrial planning. They have secured equity stakes and offtake agreements in key resource regions, including the Democratic Republic of Congo for cobalt, Chile for lithium, and Canada for nickel and rare earths.[5]

Likewise, the United States has deemed critical minerals as strategically important. In March 2022, the Defense Production Act was invoked by President Biden with the clean energy transition in mind. The goal is to increase the extraction of critical minerals such as lithium, nickel, cobalt, manganese, and graphite. To support this undertaking, the Department of Energy provides loan guarantees and equity financing. The free trade agreements the US has in place with countries like Australia and Chile are an additional advantage in this regard. Furthermore, the US has initiated the Minerals Security Partnership which aims to accelerate “the development of diverse critical minerals supply chains in cooperation with industry and other governments to support strategic projects and encourage investment throughout the value chain by reputable mining companies.”[6]

Europe, in turn, is in the midst of defining how the access to critical minerals can be secured. Currently, Europe has almost no refining capacity, limited mining, and weak investment mobilization. It remains exposed to Chinese processing capacity, without comparable instruments to mitigate the risk. The Critical Raw Materials Act aims for 10% domestic extraction, 40% processing, and 15% recycling of strategic materials by 2030.[7] But it does not match these targets with funding instruments of the scale deployed by China or the US. Strategic dialogues between the EU and the automotive sector have promised actions but delivered little concrete progress so far.[8]

Manufacturing Equipment

The production of battery cells is technologically challenging and requires highly developed manufacturing equipment. Comparable to critical minerals, the industry’s dependency on China for equipment is high. For instance, the machinery required for coating, formation, and precision assembly is dominated by Chinese suppliers.

Europe as well as the US lack large-scale players with the necessary know-how and production capacity for equipment required to manufacture battery cells. This restriction limits their ability to scale battery production autonomously. Moreover, it exposes the industry to supply disruptions in case of Chinese export restrictions or geopolitical tensions.

Steel and aluminum

Steel and aluminum play a dual role in the battery industry: as components in casings and as essential inputs for building factories. For PowerCo’s Standard Factories in Salzgitter, Valencia, and St. Thomas, steel is among the most important construction materials.

Yet access is distorted by trade frictions. Tariffs on steel complicate supply chains in North America and globally. These frictions can translate into higher costs, slower time-to-market, and delayed projects or in some cases even unviable business cases. While not as existential as critical minerals, steel and aluminum constitute a cost and timing vulnerability that directly impacts competitiveness.

Clean and affordable energy

Selecting a production site is a complicated process that takes a variety of factors into account. One major factor is the price for electricity. As the production of battery cells is an energy-intensive business a consistent access to affordable and low-carbon electricity is required. Low electricity prices are purposefully used by countries and states to attract companies. The words to live by are “industry follows energy.”

Europe suffers from fragmented electricity markets and infrastructure bottlenecks. Particularly Germany faces a structural disadvantage as industrial electricity prices are two to three times higher than in the US or Canada.[9] A widening of price differences cannot be ruled out, as the US is increasingly relying on fossil fuels again. When comparing Germany and China, PowerCo is expected to incur additional energy costs of several hundred million EUR per year compared to a production in China. Without structural measures to ensure affordable energy, Europe risks investment leakage and declining competitiveness across its industrial base.

Power Co’s Construction Sites in Valencia, Spain (June 2025), Salzgitter, Germany (March 2025) and St. Thomas, Canada (June 2025) | Photos by Marco Prosch/PowerCo SE

3. Policy challenges and recommendations

China in the past has already demonstrated its willingness to use its market position as leverage by introducing export restrictions. Such restrictions include the export of rare earths to Japan in 2010, the export of graphite in 2023, and a broader export restriction on rare earths in April of 2025. Such measures underscore the risk of overdependence on a single supplier for critical inputs. In addition, the Chinese government has supported its battery cell industry by investing over 130 billion USD.[10] This has led to production overcapacities which have directly impacted price competition globally.

The United States likewise pursues a dual strategy of subsidies and protectionism. By excluding supply chains that contain “Prohibited Foreign Entities” from IRA Section 45X incentives, the US effectively tailors supply chains to its needs. The US trade policy further complicates supply chains by introducing a variety of tariffs such as the anti-dumping tariff on Chinese anode graphite. Besides, the upcoming review of the USMCA in 2026 might bring substantial changes, particularly with regards to Rules of Origin and possibly Chinese content.

Canada, though rich in resources and aligned with Europe in principle, remains economically strongly oriented towards the US. At the same time, Canada faces significant Chinese investment in its mining sector. In 2024, almost 50% of all new Foreign Direct Investment (FDI) in Canadian mining stemmed from China.[11] However, Canada has previously ordered Chinese miners to divest from lithium holdings and blocked the sale of rare earths to a Chinese entity.[12] On this note, in August 2025, Canada and the EU published a joint declaration of intent on a critical minerals cooperation.

Despite recognizing the strategic importance of batteries, the EU has not matched the policy intensity of its competitors. While the areas of action have been identified, concrete measures regarding the access to critical minerals, output-based production support, local content requirements, or energy prices remain pending. The lethargy of Europe has recently been criticized by Mario Draghi. At a public speech in August, he pointed out that in geopolitical crises, Europe can only watch from the sidelines. The same is currently true for the race to secure a domestic battery cell production and required supply chains.

Therefore, Europe must act now to close these gaps. First, the EU should accelerate investments in critical minerals and processing thereof. This requires mobilizing the European Investment Bank, InvestEU, and the Innovation Fund for strategic projects, combining grants, loans, and equity to crowd in private capital. Important Projects of Common European Interest (IPCEIs) should be extended to cover processing facilities and upstream mining. FDI investment in Canada as a natural partner comes to mind in this regard.

Second, the EU should finalize free trade agreements with Chile, Australia, and Indonesia, among others. These agreements are essential to secure long-term access to critical minerals. Resources that are otherwise being tied up by China and the US.

Third, the EU should support the build-up of European equipment competence. Public-private partnerships between universities, machinery firms, and battery manufacturers can help develop the know-how necessary to reduce reliance on Asia.

Fourth, Europe and in particular Germany need to address their energy disadvantage. An EU framework for affordable industrial electricity prices is required, building on Germany’s national debate. This should be complemented by accelerated investment in renewable energy and transmission infrastructure.

Finally, the EU must recognize that its subsidy structures are out of step with global competitors. While Europe does not need to replicate the IRA, it must ensure that financing instruments are available at comparable scale and practicability to support industrial production and prevent investment leakage. Initiatives like the Battery Booster announced by the European Commission in March 2025 with their limited budget and regulatory restraints cannot fill this gap. The multiannual financial framework for 2028 onwards, on the other hand, could lay the foundation for an impactful industrial policy. However, a potential budget to support the battery cell industry is yet to be allocated, and it is already clear today that this support would arrive late.

4. Conclusion

The global battery race is being won by those who act quickly and decisively. China and the United States are actively securing the foundations of their domestic battery cell industry. China dominates the access to critical minerals as well as their processing and equipment manufacturing. Furthermore, the Chinese battery cell industry heavily benefits from subsidies that enables their players to secure a substantial market share. The United States has followed this approach by introducing and retaining significant parts of the IRA, taking measures to build up a domestic battery cell industry, and protecting their economy from Chinese influence.

Europe on the other hand lags behind. This asymmetry creates a structural disadvantage for European companies, undermining both the automotive sector and the green transition. To remain competitive, Europe must act now. The EU should accelerate investment in critical minerals and processing, finalize trade agreements with resource-rich partners, and support industrial production through European financing instruments and partnerships as well as affordable energy prices. Without such measures, Europe risks losing its automotive value chain, jobs, and economic wealth to global competitors.

Kai Müller is Chief Financial Officer at PowerCo SE. Sören Pippart is Senior Expert for Public Affairs with a focus on North America at PowerCo SE.

About PowerCo SE: PowerCo is shaping the battery future. Founded by the Volkswagen Group in 2022, PowerCo is a globally operating battery cell manufacturer with a strong commitment to sustainability. The company, headquartered in Salzgitter, is rooted in Europe and is responsible for the development and production of battery cells, as well as the vertical integration of the value chain. PowerCo is currently ramping-up three cell factories with a combined capacity of up to 200 GWh per year: Salzgitter in Germany, Valencia in Spain, and St. Thomas in Canada.

Check out our other policy briefs for the Transatlantic Forum on Geoeconomics:

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„Waiting for the Big Bang: Executing the European Defense Build-Up in Germany“ by Robin Fehrenbach, Director of Research and Documentation at Atlantik-Brücke, Jakob Flemming, Senior Program & Research Manager at Atlantik-Brücke and Julia Friedlander, CEO of Atlantik-Brücke

„How to dismantle a reserve currency“ by Daniel McDowell, nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

„The Road to Turnberry“ by Elizabeth Baltzan, Senior Fellow at the Atlantic Council GeoEconomics Center and former Senior Advisor to the US Trade Representative.

„The summer of AI action plans“ by Alisha Chhangani, assistant director at the Atlantic Council GeoEconomics Center and Ananya Kuma, deputy director, Future of Money, at the Atlantic Council GeoEconomics Center.