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In order to meet projected demand for EVs, batteries will need to be manufactured in much larger quantities. Higher production levels will help economies of scale to be realised, ultimately reducing the price and hence driving the take-up of EVs. There is significant opportunity for corporates and financial investors to invest in the development of EV battery plants all over the world, supported not just by projected demand, but also by policy and regulatory activity to support such investment.

China accounts for

> 60%

of the world's battery manufacturing capacity

At present, China accounts for over 60% of the world’s battery capacity. Chinese companies such as CATL, Funeng Technology, BYD and Tianjin Lishen have invested heavily in “megafactories” (i.e., battery manufacturing plants with outputs of at least 20 GWh) – and Korean companies LG Chem and Samsung have also opened megafactories in China.

Moreover, analysts predict that China will continue to host the greater proportion of battery manufacturing over the next 10 years. Analysts also predict that Europe will overtake the US in battery manufacturing capacity over the next 10 years, due to the activities of companies such as Sweden’s Northvolt (whose first factory in Northern Sweden aims at full capacity to produce 32 GWh of capacity per year). By 2028, worldwide production capacity is expected to grow by 400%.

Investment in battery manufacturing capacity will be catalysed by legal and regulatory developments across key jurisdictions: for example, the EU has recognised that battery manufacturing is of strategic importance and it, along with several Member States such as the UK, France, Germany, Belgium and The Netherlands, have all declared initiatives to promote the manufacture of batteries. The EU is currently running a consultation, due to close on 8 August 2019, to encourage stakeholders to provide evidence and views on the support for a regulatory intervention, the primary aim of which is to foster the production and placing on the EU market of high-performing, safe, sustainable and durable battery cells, packs and modules, produced with the lowest environmental footprint possible and in a cost-effective manner.

The European Commission set up a European Battery Alliance in late 2017 to encourage cooperation between key industrial stakeholders, interested Member States and the European Investment Bank. Its aims are to facilitate access to various types of funding for battery manufacturers, including allowing EU Member States to give state-aid to cross-border battery research projects considered to be Important Projects of Common European Interest. Pursuant to that Alliance, France and Germany have announced their intention to invest €1.2 billion in a European battery consortium. The consortium, which so far includes PSA, Opel and Saft, intends to open plants in both France and Germany and to begin manufacturing liquid vehicle batteries by 2023 and solid-state vehicle batteries by 2026.

The American Mineral Security Act (S.1317) was introduced in the Senate last month, for the purpose of fostering domestic production of minerals considered critical to the U.S. The act would require an inventory of metal reserves in the U.S. and seek to streamline permitting for the Electric Vehicle sector. The U.S. currently has limited mining capacity for minerals crucial to lithium-ion batteries, including lithium, cobalt, graphite and nickel. S.1317 is still in the process of consideration by the Senate Committee on Energy and Natural Resources.

China has relaxed rules on foreign companies establishing a presence in its jurisdiction by removing foreign investment restrictions on EV battery manufacturing in the PRC in late 2018. Accordingly, non-Chinese companies can now establish a presence in the PRC to manufacture EV batteries without having to enter into a JV with a Chinese entity.

More broadly, we expect to see more joint ventures and other forms of combination and cooperation in this space as mining enterprises, battery manufacturers and car manufacturers that seek to source batteries come together. This opens a whole host of new opportunities and challenges.

The key challenge for such JVs relates to conflicts around decision-making and governance, especially if members have differing expectations about roles, strategies and responsibilities. Legal advice is particularly useful in helping to anticipate these complexities and ensure that they are reflected in the JV’s governance and contractual arrangements.

In terms of law and regulation, to date this has focussed, as one would expect, on product standards to ensure compatibility and safety, with China, the EU and the US issuing new standards in addition to the ISO standards. Future regulatory requirements and standards, certainly at an EU level, are likely to address safety, connectivity, performance, durability, bi-directionality, re-usability, recyclability, resource efficiency and the lowering of the carbon footprint.

What will be interesting to monitor is the potential for clashes between standardisation of battery production, eg for safety, sustainability or interoperability purposes and IP rights providing exclusive rights on new technology (the so-called “standard essential patents”). We have seen similar challenges arise in relation to telecommunication technologies. The Court of Justice of the EU issued a decision on a negotiation scheme for licences between the patent holders and those implementing standardised technology. Many questions will remain unanswered for a little while, however, such as the appropriate royalty rates and the availability of licences along the manufacturing chain. In Australia, changes to antitrust law due to commence in September 2019 will mean that patent licensing arrangements will no longer be exempt from scrutiny.

The EV battery lifecycle

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Powering the future:

Commercial opportunities and legal developments across the EV batteries lifecycle

Powering the Future
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