European battery capacity set to fall short of IAA localisation demand

Europe’s battery supply chain is unlikely to have sufficient capacity to meet proposed localisation requirements under the Industrial Accelerator Act (IAA), according to a new study commissioned by the European Automobile Manufacturers’ Association (ACEA).

The analysis, conducted by Mobility Global, assesses whether European battery production will be able to meet potential demand created by the IAA’s proposed requirements for locally produced components.

Under the proposals assessed in the study, localisation requirements would be introduced in two phases. Around six months after the legislation enters into force – potentially in 2027-2028 – batteries would need to contain three EU-origin components, including battery cells.

Three years after adoption, potentially around 2030-2031, this would increase to five EU-origin components, including battery cells, battery management systems (BMS) and cathode active materials (CAM).

Mobility Global modelled three scenarios ranging from a high-demand case covering the wider electric light-vehicle market to a lower-demand scenario focused on corporate cars and public procurement.

Across all three scenarios, the study found that European battery supply would fail to catch up with demand, despite battery cell production capacity being expected to reach 306 GWh by 2032.

This could restrict the number of vehicles able to meet “made in the EU” criteria and qualify for associated incentives. The analysis estimates that around three million cars could be unable to qualify because of insufficient European battery supply if the IAA enters into force in 2028.

The challenge is expected to be particularly significant for medium- and heavy-duty commercial vehicles. According to the study, the supply-demand gap could widen to 23 GWh by 2032, when demand is projected to be around four times available European supply.

The research also identified challenges beyond overall manufacturing capacity.

Many planned European gigafactories are focused on nickel manganese cobalt (NMC) battery chemistry, while demand is increasingly shifting towards lower-cost lithium iron phosphate (LFP) batteries, a market currently dominated by China.

European-produced battery cells also remain significantly more expensive than imported alternatives, while planned manufacturing capacity continues to face financing, permitting and implementation risks.

The study cautioned that announced production capacity should therefore not be treated as equivalent to operational capacity.

Further up the battery supply chain, Europe also faces shortages of cathode and anode active materials. The analysis suggests this deficit may not close until 2038-2040, even under a lower-demand scenario.

The findings highlight the scale of investment and supply-chain development that would be required to support greater localisation of European battery production alongside the transition to electric vehicles.

According to the analysis, the impact of the proposed IAA requirements will depend not only on the level of localisation required, but also on Europe’s ability to develop upstream capacity, improve the competitiveness of domestic production and establish conditions capable of attracting the necessary investment.