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From Site Selection magazine, January 2018

Why Batteries Matter

Northvolt’s lithium-ion battery manufacturing complex in Skellefteå, Sweden, is expected to employ up to 2,500 and receive a construction investment north of US$4.7 billion.
Images courtesy of Northvolt


The automotive sector needs huge capacities for lithium-ion (Li-ion) batteries. Decisions along the battery value chain are particularly complex, as well as vital to carmakers’ future competitiveness.

Why is the battery strategically crucial?

The Li-ion battery is the core for advancing electrical vehicle development. It is the predominant cost factor and the key to improving the primary performance indicator: the vehicle’s driving range. Whereas horsepower ruled in the past, today it is range, as acceleration and torque are already very high even in the smallest electrical vehicles. 

There are more complicated issues, too: OEMs that have strongly differentiated themselves in the past through driving performance need other differentiation factors. However, the higher the cost of the battery, the heavier the battery and the more space it requires, the smaller the scope of other technical options to enable differentiation from competitors and to sell high-margin extras, especially as the high price of EVs forces OEMs to offer extensive base configurations.

Next issue: Independence or Cost-Efficiency?

The cost of batteries is particularly dependent on the scale of production, giving rise to giant plants like the Tesla Gigafactory or the Northvolt battery plant in Swedish Lapland, Europe’s largest lithium-ion battery manufacturing complex, entailing an investment of €4 billion (US$4.7 billion). Such dimensions enable significant cost reductions. However, these production volumes are only possible if the battery manufacturer sells to several OEMs or if other battery applications are exploited, as in the case of Tesla with its “Powerwall” home battery. 

OEMs that opt to buy their batteries make themselves highly dependent on battery suppliers, with their specific knowledge, scale advantages and sourcing contracts (e.g. lithium, cobalt). For the OPEL Ampera for instance, battery production has been completely outsourced to LG, while Chinese BYD is a fully integrated battery manufacturer, from battery cells through battery pack, battery management systems and power electronics to the electrical vehicle itself.

Huge Demand

The demand for battery cells will grow tremendously in the coming years. According to IHS, today’s global capacity for producing battery cells amounts to 93 GWh, and it is expected to rise to 313 GWh within the next three years. Volkswagen recently announced a need for 150 GWh annually just for the group’s own fleet. Northvolt even sees a long-term market for 100-150 large battery factories worldwide.

While most of the battery cell plants have so far been established in Asia, there are many plants envisaged for Europe and North America to cater for the upcoming demand in these regions. Besides the Northvolt plant in Sweden:

  • The TerraE company, supported by 17 German companies and research institutes, is planning a giga-factory in Germany.
  • Mercedes is to invest €500 million (US$589 million) at Kamenz — a site in Eastern Germany.
  • Jaguar Land Rover will set up a battery prototype center in the UK, and is in discussion with BMW and FORD on a joint large-scale battery plant in Europe.
  • South Korea’s LG Chem will open Europe’s largest lithium-ion battery factory in Poland next year.
  • Samsung SDI will be launching production of high-power and high-efficiency batteries in Hungary in 2018.
  • SK Innovation, a South Korean battery cell supplier whose customers include Mercedes, will invest 840 billion won (US$777 million) to build an electric vehicle battery plant in Hungary in order to meet the demand from automakers in Europe.
  • Chinese company A123 opened its Czech battery plant in March 2017.
  • Nissan has established large-scale battery production operations in Sunderland, UK.
  • Continental AG has plans to set up a large battery plant in Europe.
  • Bosch has ambitious plans with 48-volt hybrid batteries, and is expected to extend its capacities as well.

Risk Mitigation

The location decision process for a Li-ion battery plant is particularly complex, as many cost and risk factors must be considered, according to René Buck, founder and CEO of site selection consulting company BCI. He also emphasizes the time factor: As the market is growing fast, the time it takes to go from making a decision to an up-and-running plant is a crucial element.

For Northvolt, a stable and cost-efficient power supply was a decisive factor, along with infrastructure and skilled labor. Renewable energy sources around the plant can help to minimize the carbon footprint of the production process and to foster a green position.


According to a study conducted by consulting firm Roland Berger on behalf of the German National Platform for Electro Mobility, the availability of battery experts is a key factor, and a deficit exists in Germany, for example, compared to Asian locations.

Andreas Paulicks is a Senior Partner at the consulting firm PM&P in Frankfurt, Germany. He has more than 20 years’ experience in assisting companies in international strategic marketing, including large corporations from the US and Europe. Andreas also advises investment promotion agencies worldwide on attracting foreign direct investment with an emphasis on the automotive industry.

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