Home / Industry / Energy /  EV battery investments are getting more political

Car makers’ battery investments took a nativist turn this week. That isn’t a surprising development, but it brings extra risks.

On Friday, Mercedes-Benz said it would take a 33% stake in Automotive Cells Company, a European battery startup that previously received backing from French energy giant Total, trans-Atlantic car giant Stellantis and, crucially, the European Union. Total, Stellantis and Mercedes-Benz will end up with a third each of a venture that plans to spend at least €7 billion, equivalent to roughly $8.22 billion, through 2030 to build European cell-manufacturing plants, or “gigafactories" in Elon Musk’s phrase. Mercedes-Benz said it was committing less than €1 billion in total, implying heavy doses of debt and subsidies in the project.

The deal follows news earlier this week that Ford will invest $50 million in Redwood Materials, a startup trying to bring the lithium-ion battery supply chain to the U.S. The brainchild of Tesla co-founder and former Chief Technical Officer J.B. Straubel, Redwood has plans that match Tesla’s for wild ambition. Last week, the company said it aimed to produce enough battery-electrode materials for one million electric vehicles by 2025 and five million by 2030, which would equate to almost half total U.S. vehicle production in a typical year.

These are very different deals, but they have something in common: Emblematic car brands on either side of the Atlantic are getting behind local battery ventures with not just local plants but also local founders and owners.

Earlier this year, Ford launched a joint venture with South Korea’s SK Innovation, one of the cabal of East Asian companies that currently dominate the global battery business. Until now, the most important battery suppliers to Mercedes-Benz, whose largest shareholder is Chinese automotive billionaire Li Shufu, were both Chinese: CATL and Farasis Energy, in which it has a small equity stake. The companies needed these partners for their proven know-how and production capacities.

ACC and Redwood are unproven startups with little but grand plans and well-connected backers, but they carry a political weight that East Asian companies can’t. In Europe, ACC emerged from Franco-German plans for an Airbus-style consortium for batteries, which are a pillar of the European Union’s new industrial strategy to compete with China.

The U.S. under President Biden is taking a similar road. Even within the high-priority EV sector, Redwood, with its focus on bringing supply chains onshore, sits in a sweet spot for Washington. Currently American-made batteries are heavily reliant for inputs on metals processing in China. Tesla gets lithium from China’s Ganfeng, for example.

The advantage of following political priorities for the likes of Ford and Mercedes-Benz is that they might benefit from more public support and subsidies. The car industry cannot hope to avoid politics. But there is a disadvantage, too: They are straying from East Asian players with more technical experience. Mercedes-Benz in particular is making its biggest battery bet yet on a company that at this point consists of little more than a research and development operation. Volkswagen is in a similar position with its roughly 20% stake in Swedish battery darling Northvolt.

Homegrown battery companies in the U.S. and Europe alike have very high expectations to live up to.

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