The encouraging beginnings of the French battery industry

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 That France and Europe have put the battery electric vehicle (BEV) cart before the horse in research and the battery industry is fairly unanimously accepted. The problem now is to know whether the delay and the dependence that this implies on Asian players in general and Chinese players in particular can gradually be reduced. By agreeing to give up a certain number of symbolic battles, it seems to us that the French sector will have made quite a lot of progress in this direction this year.

The year 2021 has largely confirmed the conviction born in 2020 when, despite Covid, BEV offers found takers:
- the political obligation to sell these products ends up producing the desired effects;
- Electricity comes out of the closet;
- what was deemed impossible becomes possible.

Indeed, until 2019, the battle of beliefs was fairly even. Those who claimed that customers would not be convinced even with generous purchase subsidies and that insufficient volumes would lead to losses per car (which would force salespeople to curb their ardour) seemed to be able to fabricate the reality they predicted with their speeches. Similarly, their opponents, who thought that when the supply was there, salesmen would be instructed to convince people of the relevance of the electric choice and that volumes would trigger investments and make it possible to see the reduction in the FRP (manufacturing cost price) of EVs, could be considered as formulating what sociologists call a "self-fulfilling prophecy": the more one thinks that things are going to happen in this way, the more likely it is that they will.

Among the ingredients that could make one and/or the other representation of the future 'self-fulfilling' was of course politics. From the manufacturers' and traders' point of view, if one adopts the first point of view, it would be appropriate for the public authorities to temper their electrifying ardour and give the industry and consumers more time and more choice...

If, on the other hand, the second analysis is adopted, then we must show an unwavering determination to stay the course and even make the requirements even more stringent so that the internal combustion vehicle is abandoned, that the alternatives seem incapable of meeting the deadlines to which the industry is subject, and that, in the end, the BEV (battery electric vehicle) becomes the unavoidable universal standard within a decade.

Even if leaders like Carlos Tavares still make a few relapses, the year 2021 confirms the pro-electric point of view to a large extent and the areas of questioning that dominate today are no longer those concerning the question of whether to favour BEVs but those concerning the questions of "how" to do it. From this point of view, in the French case, quite logically, belatedly but surely, it is the question of batteries that our two manufacturers have begun to answer. And, as we left the field of a priori analyses to confront operational and financial questions, we had to compose and explain to the employees, the public and the authorities how we intended to make the choices.

Very early on, the electric choice was rightly questioned in geostrategic terms as introducing a problematic 'Chinese dependence' for the European automobile. Without going so far as to claim, as Carlos Tavares did, that the BEV would put the European automobile industry in such financial difficulties that Chinese investors would just have to pick up the pieces, it was indeed clear that :
- the major battery players and installed capacities were Asian, i.e. Chinese, Korean or Japanese
- Among them, the Chinese players were, due to a highly structured policy of Beijing, masters of the sector, from raw materials, to precursors, electrolytes and separators, to electrodes and cells, including capital goods for the factories.

Aware of this, the national and European authorities did not want to deduce at the end of the last decade that it was necessary to find another way to decarbonise, even if some (the supporters of hydrogen, for example) suggested it. Instead, they continued with the rationale of imposing electric power so that problems that could not be solved when it was only a niche could be solved with the hope of future gains associated with mass BEV.

For them, this new context created by politics should also make it possible to overcome the question of Chinese dependence. In Europe, noting that the major competitor countries were not shying away from the sacrosanct liberal rules prohibiting state aid in these strategic areas, they agreed to do the same, and the framework of the Important Project of Common European Interest (IPCE) provided a framework for this.

In 2020-2021, all this stabilised at the same time as the CAFE requirements for 2030 and then for 2035 became clearer and clearer, both at Stellantis and at Renault, the choices that will answer these questions. The choices in question are very defensible strategically and industrially, despite the fact that, from a political point of view, they suffer from two major defects:
i) the choices in question are not common to both manufacturers and the Airbus (the PIIEC) is in fact a Franco-French JV;
ii) strategic independence is an objective that has largely had to be moderated on the one hand and set in the long term on the other.

On the first question, at the end of 2020, we were still wondering whether Bercy would manage to convince Renault's management to join the Stellantis-Total (Saft) project called ACC. It was soon confirmed that this would not be the case. Although, at first sight, one might find this a pity, it seems quite logical: the battery and the technological, industrial, logistical and geostrategic control of the value chain that goes with it are becoming the heart of the automobile industry. From a commercial point of view, it will become crucial to be able to tell customers that we are offering them the best in battery technology at the same price. From an industrial and financial point of view, in the transition as well as in the long term, the speed of acquisition of the wide range of new skills will be at the origin of a major part of the differences in performance between manufacturers in the years to come.

Knowing this, it would indeed have been very surprising if two companies in head-on competition on their main markets and, in particular, in France, had decided not to take advantage of this field which is destined to become central. One must even wonder whether this would have been desirable. Indeed, as is the case in the automobile industry in general, the ecosystem is all the richer for being diversified and, from this point of view, France has everything to gain by keeping two manufacturers in competition and would have everything to lose by seeing them merge. The major automotive countries (Japan, Germany, the United States) have several manufacturers and - as we learn to understand this business better - the battery field is so complex and uncertain that it is certainly preferable to have a multipolar battery industry. ACC has already announced that Daimler has joined. Envision in Europe does not intend to be satisfied with being a supplier to Renault and Nissan. The clarifications and developments that have taken place this year are rather encouraging.

What remains is the ability that European manufacturers in general, and French manufacturers in particular, have, or rather will have in the long term, to acquire real strategic independence in the field of batteries.

The first thing to say at this level is that, for European brand BEVs currently on sale as well as for those that will be launched in the next three or four years, the French, like other Europeans (and like Tesla, for that matter), will continue to buy their batteries from the major Asian battery manufacturers.

As they are the first to have built factories in Europe, they will be imported less and less, but the technologies and profits, and therefore the capacity to maintain strong R&D, will still be fuelled by the development of the BEV market in Europe. For example, for Renault, the electric Mégane assembled in Douai which is about to be released will use LG batteries, just as ACC will only start producing batteries for use in models of the group's brands in 2023 or 2024. For reasons of production capacity, investment costs and/or control of the whole range of technologies, even when the factories currently under construction to provide alternatives are operational, our manufacturers, like other European manufacturers, will not stop working with LG, SKI, Samsung, CATL and others.

As for the mastery of technologies and the ability of Europeans to catch up and eventually become leaders in the future generations of Lithium-Ion batteries and then in the "new chemistries", we must also be cautious and grasp the time frame in which we can operate. Indeed, the very nature of the public choice made implies dependence: there is an urgent need to reduce its CAFE by trying to prevent vehicles from becoming too expensive and by trying to get customers to buy in. In this context, there is no choice but to get the batteries from the only ones who know how to design and manufacture them, and the competitive game at the moment is to choose the best suppliers and try to get them to give you the best before the others. Preparing for the "next move" while knowing that you will be in this sequence for a few more years is the squaring of the circle that needs to be managed for now.

Stellantis is doing this by allowing ACC to take off thanks to all the brands of the group (including those of Fiat-Chrysler) and those of Daimler. The European perspective is politically very attractive but it is risky because everything indicates that the mastery of the different phases of the industrial processes involved is not easy to acquire and that, in this matter, within the framework of a mass production such as that which the automobile implies, experience - which neither the manufacturer nor Saft have - is important. Renault has chosen - after having, a few years ago, preferred to discard the Nissan-NEC tandem and their joint spin-off AESC in favour of LG - to rely on the experience and R&D of Envision, which acquired AESC in 2018.

The challenge here is to cultivate and strengthen the cultural and technological proximity that already exists between Nissan and AESC by doubling it with a very close relationship with Renault. Admittedly, the shareholder is Chinese and the headquarters of AESC is in Japan, but the factory that will be set up in the Douai plant will be one of the largest and, Renault hopes, the vehicles equipped with the latest generation of AESC batteries will make the most of its qualities.

Asked last week during the public consultation whether this partnership would deprive Renault and France of their ability to move up the value chain, the boss of the AESC Douai plant project, Ayumi Kurose, of Japanese origin, very wisely drew a parallel with judo: "It is of course," he said, "a sport that was born in Japan, but when the French decided to take a serious interest in it, they ended up producing more Olympic medallists than we did.

The game is, at the beginning of this new era, still very open. Two years ago, one could still be rather pessimistic because one could doubt the real will of the French players to enter the game. However, if we do not know who the winners will be, we know that they will be recruited from among those who have played. At the end of 2021, we know that the French are now among those who intend to play and this is already a very significant step forward...

6/12/2021

The weekly column by Bernard Jullien is also on www.autoactu.com.

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