FARADAY INSIGHTS - ISSUE 2: AUGUST 2019

The Gigafactory Boom: the Demand for Battery Manufacturing in the UK

The transition to electric vehicles will substantially increase the demand for batteries. Across Europe, there is a race to develop battery manufacturing factories to meet this demand. The UK is well- positioned to be a major player in this market. By 2040, the Faraday Institution estimates that eight gigafactories will be needed in the UK and consequently employment in the automotive industry and battery supply chain could increase from 186,000 to 246,000 jobs.

The Global Race Is On Europe Playing Catch-up The manufacture of lithium batteries is increasing at an With a stream of high-volume battery manufacturing plants exponential rate, which is driven by the global growth in (‘gigafactories’) coming online over the next decade electric vehicles (EVs). Global supply is expected to increase (Figure 2), Europe can recover some of the lost ground to five-fold over the next decade from 297 GWh per annum in China. Europe’s market share of the global battery supply 2018 to 1.6 TWh p.a. in 2028 (Figure 1). China has secured market is expected to reach 14% by 2023 and 17% by 2028.1 first-mover advantage and cornered a substantial proportion European gigafactories serving the growing European of the market. In 2018, around 68% of lithium ion batteries market have an advantage over Chinese manufacturing were manufactured in China, compared to 10% in the US and facilities in that they face lower transportation costs and can just 4% in Europe. However, with the market set to increase avoid import tariffs. substantially, there is a massive opportunity for Europe to European growth is, however, not being achieved by take a bigger portion of the global market. local European firms but by Chinese and Korean battery Figure 1: Global battery manufacturing supply to 2020 companies who are seeking to increase their share of the global market and see co-location of OEMs and battery 1,800 1,594 manufacture in Europe as the dominant business model over 1,600 the long term. Notable plans include LG Chem’s construction 1,400 of a 45 GWh p.a. plant in Poland, Samsung’s 16 GWh p.a. 1,200 plant in Hungary and CATL’s 14 GWh p.a. plant in Germany. 1,000 965 800 GWh "By 2040, the Faraday Institution estimates that eight 600 gigafactories will be needed in the UK. Consequently 400 297 employment in the automotive industry and battery 200 supply chain could increase from 186,000 to Battery Manufacturing Capacity Manufacturing Battery 0 246,000 jobs." 2018 2023 2028 China Asia North America Europe Other Photo courtesy of Nissan Source: Elexica/Benchmark Mineral Intelligence 1 Elexica/Benchmark Mineral Intelligence

POWERING BRITAIN’S BATTERY REVOLUTION FARADAY INSIGHTS - ISSUE 2: AUGUST 2019

Figure 2: New gigafactories announced in Europe

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Source: McKinsey, company websites Figure 3: Gigafactory demand in the UK to 2040 In the UK, the Nissan Sunderland plant was one of the first 8 sites in Europe to manufacture EV batteries. Established 7 in 2007 as a joint venture between Nissan, NEC and Tokin Corporation, the Automotive Energy Supply Corporation 6 (AESC) started production in 2010. However, the size of 5 production has remained small with current production of 4 around 2 GWh p.a.2 In 2018, Nissan announced the sale of AESC to Envision Group. 3 2

The UK Demand for Gigafactories Number of Gigafactories 1 The Faraday Institution expects UK battery demand to be 0 sufficient to support one UK gigafactory from 2022 and a second factory from 2025. However, the UK needs to move 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 fast if it is to secure these initial gigafactories and capture a Source: Faraday Institution EV forecasting model substantial share of the European market. It may take up to five years to design and then build a new gigafactory in the What Does a Gigafactory Look Like? UK. A considerable amount of time will be spent on locating The term ‘gigafactory’ was initially coined by Elon Musk a suitable site, securing permits/licences and construction of as a name for one of Tesla’s lithium ion battery and EV the plant itself. manufacturing plants, such as the ‘Gigafactory 1’ plant Over the longer term, we forecast demand3 for EV battery located in Nevada. It is now used more widely to define any production in the UK to reach 130 GWh p.a. by 2040.4 This large battery manufacturing plant, such as the Northvolt would support about eight gigafactories5 in the UK assuming gigafactory in Sweden. A typical gigafactory produces cells each plant has a production capacity of 15 GWh p.a. Such and modules used in EVs, as well as undertaking wider domestic demand (which assumes no battery import or activities such as laboratory analysis, prototype engineering export) represents 11% of the projected 1,200 GWh p.a. of and R&D. European battery production. Figure 4 illustrates the detailed activities undertaken in the manufacture of a lithium ion EV battery module. We estimate that a gigafactory undertaking these activities in the UK would directly support between 2,000 and 3,000 jobs and indirectly support a further 7,000 to 8,000 jobs in the battery supply chain.

2 The European Investment Bank also provided financial support of EUR 220 million towards battery production and manufacture of the Nissan LEAF. See http://europa.eu/rapid/press-release_BEI-11-167_en.doc. 3 The Faraday Institution ‘EV forecasting model’. See ‘UK Electric Vehicle and Battery Production Potential to 2040‘ for more details. 4 This is our central scenario. Under our low scenario we forecast demand for UK-produced batteries of 60 GWh p.a. by 2040 and 200 GWh p.a. under a high scenario. 5 Our forecast ranges from 4 gigafactories under the low scenario to 13 gigafactories under the high scenario. 6 • 2,000jobsinbattery R&D. • 47,000 jobsinthebattery supply chain;and • 26,000jobsinbattery manufacturing; • 8,000jobsinEVmanufacturing; manufacturing industrywouldbesupported, comprisedof: an additional83,000new FTE jobsinthe EVandbattery purchase EVs ingreater numbers.However, weexpect that internal combustionengineswilldeclineaspeoplestart to Employment manufacturing vehicles withtraditional equivalent (FTE) jobsby 2040(Figure 5). supply chaincouldincrease from 186,000to 246,000full-time employment intheautomotive industryanditsbattery demand through eightnew gigafactories, weestimate that If theUKmanagedto supply allofitsdomesticbattery Manufacturing Industry Employment by Supported theEVandBattery Note: Somegigafactories goastep furtherandalsoassemble thebattery ‘modules’into battery ‘packs’. Figure 4:Materialsandprocesses undertaken inatypical gigafactory FARADAYINSIGHTS -ISSUE 2:AUGUST 2019 Source: We assumed thatthe1.2%perannumgrowth inEVandinternal combustionenginevehicles produced intheUKisoffset by thesameper annumincrease inlabourproductivity. Solvents Binders (NMC811) material active graphite) (syntheti material activ Additives Advanced Propulsion Centre

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Risks to the Automotive industry without What Needs to Happen? Battery Manufacturing Although the UK will have the battery demand to support The increase in automotive employment is far from certain. one gigafactory by the early 2020s, the challenge to secure Our research and discussions with the automotive industry interest from global firms should not be underestimated. and battery manufacturers suggest that financial, legal, The UK cannot hope to attract gigafactories through the regulatory and safety considerations will push automotive provision of a low cost-base alone but needs to come closer OEMs and battery manufacturers to be located in close to matching the financial and administrative incentives proximity to one another. offered by other European countries. For example, France and Germany have recently offered financial incentives Lithium-ion batteries are classified as miscellaneous of €750 million and €1 billion respectively to EV battery dangerous goods which means they need to be carefully manufacturing firms. handled, packed and transported. As volumes increase this could become more costly and challenging for the We conclude that HM Government should consider the industry. Locating battery production close to EV production following actions: also helps support a just-in-time manufacturing system • further moves to establish coordinated, ambitious and by reducing working capital, shortening the cross-border centralised leadership; supply chain and lowering carbon emissions caused by transportation. • further efforts to communicate the attractiveness of the UK as a global and regional battery manufacturing location; If the UK does not attract and develop a battery drawing on the content of this report; and manufacturing industry, then there is a risk that the production of EV’s could move out of the UK and gravitate • new efforts to de-risk the business case by undertaking towards where the batteries are manufactured. Without UK prospective site selection, the preapproval of relevant battery manufacturing, we estimate that car production in permissions, the construction of basic on-site physical the UK would decline and there would be a potential loss of (especially energy) infrastructure and the development of some 114,000 existing automotive jobs by 2040 (Figure 6). the requisite EV battery skills and training infrastructure. While the growth of the EV market will not start to accelerate Figure 6: UK automotive industry jobs to 2040 in the until the early 2020s, the UK government needs to act now absence of battery manufacturing to secure a UK gigafactory otherwise a significant economic opportunity will be missed. Securing battery manufacturing 250,000 in the UK will support the rapid growth of EV production and future proof employment in the UK automotive industry. 200,000 About the Faraday Institution and Faraday Insights 150,000 The Faraday Institution is the UK’s independent research 100,000 institute for electrochemical research and skills development. We bring together academics and 50,000 Employment industry partners in a way that is fundamentally changing how basic research is carried out at scale to address 0 industry-defined goals.

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Our ‘Faraday Insights’ provide an evidence-based Source: Faraday Institution estimates assessment of the market, economics, technology and capabilities for energy storage technologies and the transition to a fully electric UK. The insights are concise briefings that aim to help bridge knowledge gaps across industry, academia and government. If you would like to discuss any issues raised in this ‘Faraday Insight’, or our wider battery research programme, please contact Stephen Gifford. Sign up today to be added to the distribution list for future Faraday Insights www.faraday.ac.uk/subscribe

CONTACT Stephen Gifford Head of Economics & Market Insights [email protected] www.faraday.ac.uk 01235 425125 07741 853068