The EU's Regulation 2023/1542 concerning batteries and waste batteries (henceforth "Regulation") officially came into effect on August 17 this year. This will significantly impact battery production, supply chain construction, and trade worldwide, with China's power battery industry and companies being the most affected.
The Regulation categorizes products into automotive batteries, electric vehicle batteries, light transportation vehicle batteries, industrial batteries, and portable batteries. The requirements cover various stages of the battery's lifecycle, including raw material production and processing, battery usage, and recycling of retired and discarded batteries. This sets different timeframes for regulating power battery products sold in the EU market, focusing on carbon footprint, battery material recycling rates, as well as battery product passports. In essence, the Regulation encompasses three main aspects:
Among all, carbon footprint regulation will be implemented earliest. Starting from February 18, 2025, power battery products need to provide carbon footprint reports. By February 2028, the EU will establish a maximum threshold for the carbon footprint of electric vehicle batteries, where the carbon footprint throughout the lifecycle of power battery products sold in the EU market must not exceed the specified value. Carbon footprint refers to the direct or indirect CO2 emissions generated throughout the battery's lifecycle, including emissions from upstream raw material extraction and processing, midstream battery production, transportation, and downstream consumption. Researchers at ANBOUND pointed out that the EU's requirements for the carbon footprint of power battery production will align with the Carbon Border Adjustment Mechanism (CBAM) policy passed by the European Parliament on April 18 this year, forming a combined constraint on power battery products.
Regarding battery passports, starting from August 2026, power battery products need to have battery labels containing general information, and by February 2027, battery passports must be provided. Battery passports are a data management system that records the entire lifecycle data of batteries.
In addition, the Regulation emphasizes enhancing the circularity of the battery value chain as a core issue. It introduces a series of requirements to promote market-oriented and large-scale secondary use of retired batteries, including improving the efficiency of recycling materials from discarded batteries. By the end of 2027, key metals in batteries such as cobalt, copper, and nickel must achieve a recycling rate of 90%, and the recycling rate for lithium metal is required to be 50%. Starting from August 2031, power battery products must have 16% recycled cobalt, 6% recycled lithium and nickel, and 85% recycled lead.
China is the world's largest producer and exporter of power batteries. According to market research firm SNE Research, six out of the top ten global power battery companies in terms of vehicle installations in the first half of the year are Chinese enterprises. These companies are CATL, BYD, CALB, EVE Energy, Gotion High-Tech, and Sunwoda, collectively accounting for 60% of the global total vehicle installations. The European market is one of the primary export destinations for Chinese companies. According to data from China's General Administration of Customs, in the first half of 2023, the country exported lithium batteries to Germany and the Netherlands with a total value of RMB 56.44 billion, accounting for 22% of its lithium battery exports during that period.
China's robust growth in power battery exports has elevated them to the status of one of the "new three items" in the country's exports, alongside electric passenger vehicles and solar batteries. The EU's Regulation is poised to exert significant influence on Chinese battery manufacturers, effectively compelling them to conform to standards. Prior to the enforcement of this regulation on July 12 this year, ANBOUND's research briefing highlighted that it presents both opportunities and challenges for China's associated industries and businesses, with a notable impact on its power battery sector. On August 24, a spokesperson from China's Ministry of Commerce emphasized the country's substantial role as a battery producer and exporter, underscoring the EU's significance as a key market for eco-friendly products such as lithium batteries. China expressed its hope that the implementation of the Regulations is rooted in principles of fairness, justice, and transparency, and the aim is to prevent the establishment of artificial trade barriers. The statement by officials from China's Ministry of Commerce subtly suggests the intricacies of enacting and experiencing the consequences of the EU's Regulation.
Europe stands out as the world's foremost advocate for environmental conservation and addressing climate change, displaying the highest commitment to investing in safeguarding the planet. Its influence is underpinned by two crucial factors: firstly, Europe's expansive market terrain—a robust consumer base compels global enterprises to conform to European norms and regulations. Secondly, the global momentum towards sustainable practices is an overarching trend that charts the course for future markets and technological advancements. According to the "market space theory" of ANBOUND's founder Kung Chan, global influence has shifted beyond traditional conflicts to a business competition where the contest revolves around securing spatial dominance in global markets. Those possessing market space gain a competitive edge on the global stage, while those losing it risk fading or even fragmenting from international prominence (Kung Chan, "Market, Space, and Global Market War" March 2018). This theory implies that China, as a manufacturing powerhouse, must acclimate to the EU's regulations to effectively navigate its market space. In pursuit of accessing Europe's high-standard market, Chinese enterprises must align themselves with Europe's stringent green standards.
Furthermore, the EU's Regulation could potentially reshape the global battery industry chain. Viewing batteries from a complete lifecycle perspective, the EU has imposed stricter demands on global battery companies in terms of sustainability, battery performance, and labeling. For many Chinese battery manufacturers, this requirement could be a potential game-changer. Researchers at ANBOUND have frequently pointed out in the past that China's robust development of the electric vehicle industry primarily focuses on carbon reduction during usage. However, when considering the entire lifecycle, electric vehicles are not truly low-carbon emission consumer goods. Now, the EU assesses the battery industry through a comprehensive lifecycle lens—from raw material extraction to production, usage, and recycling. For enterprises solely concentrating on battery production, this undoubtedly establishes constraints, even potentially being a significant obstacle. Chinese battery companies aiming to export to Europe must possess a "battery passport" that adheres to European standards. These companies not only need to enhance their own technological capabilities but also refine the entire industry chain to create a sustainable operational model. For instance, China's battery industry requires strengthened collaboration internally, exploring battery applications and business models that align with the future, and establishing novel collaborative business models that encompass the "production end – application end – recycling end," ultimately achieving a genuine value chain "carbon neutrality".
Finally, Chinese battery and electric vehicle enterprises entering the European market will face increased costs. The Regulation introduces new requirements for battery companies in areas like CBAM, carbon footprint, and battery passport. (1) Chinese power battery companies need to meet the EU's carbon emission requirements, potentially necessitating technological upgrades and environmentally friendly transformations, leading to increased costs and investments. (2) Chinese power battery companies need to establish comprehensive data collection and management systems. (3) The EU classifies carbon emissions and sets related thresholds, which could impact the competitive edge of Chinese power battery products. Notably, China's power battery industry excels in production but faces weaknesses in the complete industry chain construction, particularly in battery recycling. This aspect lacks a fully built domestic industry chain, let alone an international market establishment. However, with the requirements in the European market, different scenarios for Chinese battery companies entering Europe—such as setting up battery manufacturing plants, exporting batteries produced in China to the EU, or exporting electric vehicles to the EU (including batteries)—will entail higher management and cost inputs for establishing recycling bases and networks locally to meet the EU's new requirements. (4) Establishing a "battery passport" also adds to costs, requiring the integration of multiple data information points into products and management, encompassing various data parameters from the supply chain source to all stages of the lifecycle. All these are novel and meticulous requirements that Chinese enterprises have not encountered before.
In the latest information monitoring, ANBOUND's researchers have discovered that Hungarian politician Jávor Benedek, who is also a former member of the European Parliament, posted on social media that the European Commission (EC) will investigate CATL's battery factory located in Debrecen. In the spring of this year, this opposition party political figure filed a complaint with the EC, alleging that CATL's battery factory received construction permits even though it might not have met the EU's directives regarding groundwater conditions. According to reports, the EC has responded to Benedek, stating that they will investigate the situation outlined in his complaint. In August 2022, CATL announced an investment of up to EUR 7.34 billion to build a 100 GWh battery factory in Debrecen, which, once completed, will become Europe's largest battery factory in terms of capacity. This is CATL's second overseas factory after their German one. CATL's recent experience in Hungary indirectly highlights the environmental risks Chinese enterprises might face when investing in Europe. With the implementation of the EU's Regulation, similar situations like this could potentially arise more frequently.
Final analysis conclusion:
The EU's Regulation 2023/1542 could easily be seen as part of a "green trade barrier", which adds difficulty and costs for Chinese companies to enter the European market. However, from a different perspective, if Chinese enterprises can adapt to the high standards of the EU market, they might achieve world-class levels in the battery production field. Therefore, China's relevant industries and enterprises should proactively and positively adjust to EU standards. Under external pressure, China can drive its related industries to attain higher global standards. In doing so, it has the potential to cultivate a more advanced and systematic industrial production capacity within the power battery industry, surpassing other nations. Admittedly, this marks a transformative journey for Chinese businesses, potentially resulting in the phasing out of a considerable number of them. Over time, however, this transition is advantageous for the progress and enhancement of China's battery sector, ultimately boosting the global competitiveness of its enterprises.
