Europe's battery supply falls short of IAA localisation targets, ACEA study warns

Europe’s battery capacity won’t meet IAA localisation demand, new study shows – ACEA

A new study by Mobility Global, commissioned by ACEA, assesses the preparedness of Europe’s battery supply chain to meet the localisation requirements envisaged under the Industrial Accelerator Act (IAA).

Under the proposed IAA, battery localisation requirements would be introduced in two phases: six months after entry into force of the text (around 2027-2028), batteries would need to contain three EU-origin components, including battery cells. Three years after adoption (around 2030-2031), this would increase to five EU-origin components, including battery cells, the battery management system (BMS) and cathode active materials (CAM).

The analysis examines how these requirements could shape demand, and the scale of local production required over the coming decade. Three scenarios are considered, each involving a different level of demand for European-made batteries:

• Full market (high demand scenario): covering the electric light-vehicle market, including private buyers benefiting from purchase incentives.
• Public led (moderate demand scenario): covering the electric light-vehicle, except private buyers, meaning corporate cars, rentals, fleets, dealers, and public procurement.
• Public core (low demand scenario): focused on corporate cars and public procurement only.

In all scenarios, supply is not expected to catch up with demand despite European battery cell production’s expected growth to 306 GWh by 2032.

Limited supply will remain the key constraint to expanding the number of cars that would be eligible for “made in the EU” incentives. For example, around 3 million cars may be unable to qualify for the associated incentives because of the lack of supply if the IAA enters into force in 2028.

For medium- and heavy-duty commercial vehicles, the challenge is even more pronounced. The supply-demand gap continues to widen through 2032, reaching 23 GWh, with demand around four times available European supply.

Challenges extend beyond capacity

The findings also highlight deeper structural obstacles to battery localisation:

• Most planned European gigafactories are geared towards NMC battery chemistry, while demand is increasingly shifting towards lower-cost LFP batteries, a chemistry-mix dominated by China.
• European-made cells remain significantly more expensive than those imported.
• Announced production capacity continues to face financing, permitting and implementation risks. Announced capacity should not be considered equal to operational capacity.
• Further upstream, Europe faces persistent shortages of cathode and anode active materials (CAM/AAM), with the analysis suggesting that this deficit may not close until 2038-2040, even under a lower-demand scenario.

The findings underline the need for a realistic and economically viable approach to localisation. The effectiveness of the IAA will ultimately depend not only on the ambition of its localisation requirements, but also on whether Europe can build the upstream capacity, competitive operating conditions and investment framework needed to deliver them in practice.

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Europe’s battery capacity won’t meet IAA localisation demand, new study shows – ACEA, source