German carmakers can fend off China, says Berlin

Germany’s economy minister has defended the prospects of rivalling China in producing batteries for electric vehicles, insisting his country’s car buyers will be happy to pay more for higher quality components made at home.

“I have no doubt at all that consumers will rely on better batteries rather than cheaper batteries,” Peter Altmaier said in an interview on Friday after he unveiled detailed plans for Germany’s first big plant at an Opel factory in Kaiserslautern.

China’s strong lead in battery cell technology is viewed as a threat to Germany’s car sector, a vital source of revenues and jobs for the country, as the industry shifts towards producing electric vehicles. A battery is by far the most valuable part of an electric vehicle, accounting for up to 45 per cent of the cost of its components.

Germany’s government wants at least 30 per cent of global battery cell production to take place in Europe, but Mr Altmaier played down the prospects of more state aid for the nascent industry.

“I’m not speculating about future subsidies, I’m really trying to make it competitive,” Mr Altmaier told the Financial Times. Berlin has already pledged more than €1bn to some pan-European battery production projects including the plant in Kaiserslautern.

“It’s important to rely on private investment,” he added, when questioned on whether Germany would be forced to match the substantial incentives that Beijing provides to Chinese manufacturers.

Some German carmakers and suppliers including Daimler and Bosch have so far eschewed trying to develop battery technology. Mr Altmaier praised Opel’s commitment to building battery cells but conceded that the Kaiserslautern factory would be “competitive on quality” rather than price.

Last month, a report by McKinsey found that almost a third of German drivers were put off from buying an electric vehicle because of the higher costs, although they also cited concerns about the reliability of first-generation batteries.

The quality of German engineering, Mr Altmaier added, would give its suppliers an edge over Chinese rivals.

“The question is can Germany survive under the conditions of the global economy, and the huge pace of innovation,” he said. “I believe the answer is yes.”

Chinese companies such as CATL and BYD are forecast to have two-thirds of the global battery cell market over the next decade, according to analysis by Roland Berger.

This year is crucial for Germany’s carmakers, which must begin to sell hundreds of thousands of electric vehicles to avoid billions of euros in fines from Brussels for violating strict fleet-wide emissions standards. That goal will be complicated by the country’s lack of domestically-produced batteries.

The Kaiserslautern plant is part of a joint project between Opel-owner PSA and Saft, a subsidiary of Total, which also includes a plan for a cell factory in France.

However the plants will only start production in 2024 and are likely to be undercut by cheaper Asian imports.

Berlin believes the project will eventually account for 10 per cent to 15 per cent of European battery demand.

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