Setting Up a Battery Manufacturing Plant: The Factors That Matter

Battery manufacturing is one of the fastest-growing industries worldwide. A decade ago, consumers used batteries for their laptops, phones and other gadgets. Today, these energy storage devices are powering cars, medical equipment and even houses. New plants for battery production are popping up as a result. But in this realm of a gradual shift towards batteries as a source of green energy, the selection of location/ site for setting up a battery manufacturing plant is crucial for the success of the manufacturing unit.

Yet, large-scale LIB production is currently dominated by a few large companies, such as BYD, CATL, LG Chem, and Panasonic. Unsurprisingly, the industry is challenging for the new start-ups or already existing small manufacturers for their expansion.

Choosing the right location for setting up a large-scale battery manufacturing plant is important not only to meet the regional market demand but also to boost the prospects of the firm in the competitive future that lies ahead. There’s no single ideal location to set up a battery manufacturing unit, as it also depends a lot on the manufacturer’s requirement as well. For instance, in recent years, numerous new mega-factories have been planned in the EU. Earlier, the focus was on Eastern European countries, such as Poland (LG Chem) and Hungary (Samsung and SK Innovation), but currently, there is a localization trend toward Central and Northern Europe. Prominent examples are CATL, Tesla, and Volkswagen (VW), which are building mega factories in Germany, and Northvolt, Freyr, and Morrow, which have opted for Sweden and Norway. This shows that several factors influence the choice of LIB production location.

Following are some of the most important factors that affect the site selection for setting up a battery manufacturing plant. These factors must be considered while setting up the same.

Cost of Setting up

The cost of setting up is and must be the first and foremost factor that must be considered while setting up a battery manufacturing plant. The total cost may be the combination of fixed and location-specific variable costs. Fixed costs include machine, building, maintenance, and overhead costs, whereas the variable cost comprises labour, energy (excluding taxes and levies), and material costs.

Market for Battery

The market for the product of any firm is one of the most important parameters on to base its production. This saves not just the transportation cost of the deliverables but also would incentivise greater business than would be possible from where the market is not that enthusiastic for the same. This is a similar case for battery manufacturing plants as well.

Recently, AMTE Power selected Dundee as the preferred site for a new factory producing batteries for the UK’s renewable energy and electric vehicle markets. The market played a major role in selecting the site as AMTE said that the site was close to their current and future market in energy storage. Similarly, Tesla supplier LG Energy Solution Ltd (LGES) said it was seeking battery production sites in Europe and Asia outside China, where that country’s COVID-19 lockdowns and rising input costs left quarterly profit below market estimates.

Incentives

Incentives are the most important factor when considering setting up a battery manufacturing plant at any location. As the world moves on its path toward carbon neutrality, the countries are pushing towards more non-fossil fuel energy to reach their carbon neutral targets. The Global policy efforts are driving investments worldwide. Governments provide incentives to the private players for investments in countries’ Renewable energy projects across various sectors. This includes battery manufacturing plants as well. This offsets a lot of costs, efforts, time, or all of them.

The Production Linked Incentive (PLI) Scheme of India is one such example of incentive-driven investments in battery manufacturing plants. The Government approved the PLI Scheme ‘National Programme on Advanced Chemistry Cell (ACC) Battery Storage’ for achieving a manufacturing capacity of 50 GWh of ACC. Four companies, including Reliance New Energy Solar Limited, Ola Electric Mobility Private Limited, Hyundai Global Motors Company Limited, and Rajesh Exports Limited, have been selected to receive incentives under the government’s Rs 18,100 crore PLI scheme for ACC battery storage. The incentive will be disbursed on the sale of batteries manufactured in India. Likewise in the US, the government introduced a $3 billion plan to boost domestic battery manufacturing for electric vehicles wherein the funding will support grants aimed at building, retooling or expanding manufacturing of batteries and battery components, as well as establishing battery recycling facilities.

Knowledge

Another crucial thing to consider while selecting any country or region as an ideal destination for setting up a battery manufacturing plant is the knowledge factor. It is based on a country’s academic outputs and available human resources, which reflect the country’s competencies for battery production. Lithium-ion Battery (LIB) production requires manufacturers to combine expertise from various disciplines, including chemistry, physics, and engineering; invest in production and R&D activities; and develop cell design competencies. These requirements create barriers against new entrants into this industry. Against this background, a few large companies, such as BYD, CATL, LG Chem, and Panasonic, currently dominate large-scale LIB production.

Energy Mix

LIB production is energy intensive. A manufacturer may need a location where the energy required for LIB production comes from non-fossil fuel sources – wind or photovoltaic solar energy – to avoid a negative impact on the climate, human health, and biodiversity, and to prevent resource depletion.

The energy mix in many countries is currently changing as part of the transition toward a more sustainable future. This has prompted energy producers to reduce their dependency on fossil fuel markets, while simultaneously decarbonizing the current energy mix. Yet, depending on the myriad conditions, there are substantial differences between the various countries in terms of energy mix. For example, whereas 60.1% of Sweden’s current energy consumption (production + import) is from clean energy, only 11% makes up Luxembourg’s overall energy consumption. Hence, from a clean energy perspective, some countries are more suitable choice for setting up a battery manufacturing plant than others.

Environmental Impact Assessment

Carrying out an environmental impact assessment (EIA) for a new mega factory location is a crucial requirement from environment point of view. The present need to substitute fossil fuel with greener energy alternatives is itself to curtail harmful impacts of using fossil fuels. LIB manufacturers are increasingly considering the environmental impact when making decisions about mega factory location. For instance, Mercedes-Benz, explains that it is “pursuing the goal of CO2 neutrality along the entire (battery) value chain…” Consequently, the firm has invested in battery production at its carbon-neutral locations.