Charging Up Electric Vehicle Battery Production Across EMEA

Demand Drivers for Electric Vehicles (EVs):

• Surge is driven by political focus, regulation, technological advances, ESG capital flows, and shifting consumer behavior.
• Goldman Sachs expects European EV demand to more than quadruple over the next few years.
• Consumer preference is described as "voting with their wallet," creating immediate market pressure.

Strategic Importance of Batteries:

• Batteries account for approximately 30% of the total cost of a four-seater EV (higher for heavier vehicles).
• Battery technology dictates key performance differentiators, specifically range and recharging time.
• Battery and cell production have escalated to a boardroom-level strategic priority for major automotive manufacturers.

Geopolitical and Supply Chain Context:

• The European battery supply chain is projected to scale by a factor of 10 between 2020 and 2030.
• China currently holds the largest global share of the EV and battery market; Europe and the U.S. are now following this trend.
• European governments are launching state aid initiatives to foster a local supply chain, driven by job creation and economic strategy.
• Strategic autonomy is a key political motivator, with Europe seeking control over how and where batteries are produced for use in transport and residential sectors.

Manufacturing Challenges and Solutions:

• Primary hurdle is the speed of capacity building required to meet surging demand, necessitating significant capital flows.
• Increased scale is expected to drive continuous downward pressure on battery costs.
• Key raw material components include lithium, nickel, and cobalt, with a focus on sustainable sourcing.
• Industry participants are working to bring raw material production closer to Europe to ensure supply chain sustainability.

Technology Outlook (Solid-State vs. Lithium-Ion):

• Solid-state batteries offer enhanced energy density but are viewed as an incremental evolution rather than an immediate replacement for lithium-ion technology.
• Mass adoption of solid-state batteries is still several years away.
• Current industry focus prioritizes scaling lithium-ion production to secure EV adoption, with gradual improvements in density and cost expected over time.

Investment Thesis:

• The market is characterized as an early-stage "mega trend" requiring substantial capital across the entire EV supply chain.
• Goldman Sachs aims to facilitate value creation for emerging winners while targeting attractive economic returns.
• The investment strategy aligns profit generation with the goal of reducing the overall carbon footprint of transportation industries.