China investors have become the dominant players in Europe’s vehicle battery industry after shifting their focus away from mergers and acquisitions.
Greenfield investment made up 57% of total foreign direct investment by China in Europe in 2022, according to a report on 2022 data analysed by independent research providers MERICS and Rhodium Group and released on Tuesday.
Tencent’s acquisition of Sumo Digital was the only transaction worth over 1 billion euros ($1.10 billion), with most other major investments aimed at battery plants connected to companies such as CATL, Envision AESC, and SVOLT.
“We are witnessing a major shift in how Chinese companies invest in Europe… Chinese firms have become major players in Europe’s green transition,” Agatha Kratz, director of the Rhodium Group, said in a statement.
Europe has some of the most stringent regulations on electrification and the green transition but its battery industry lags behind Asian players, with much of Europe’s planned battery capacity coming from Japanese, South Korean or Chinese producers with greater know-how.
Setting up operations from scratch in Europe allows Chinese players to avoid tariffs and transport costs and shield themselves from political tension that could impede exports and imports, the report said.
While screenings of Chinese investments in Europe have increased, the region still remains more open politically to China than the United States which has cracked down on Chinese battery imports via the Inflation Reduction Act, it added.
Still, European politicians and business leaders are in the midst of a debate over the region’s own relationship to China, seeking to prop up domestic industry and find new suppliers for key materials required for the green transition.
- Reuters with additional editing by Sean O’Meara