Unlocking the growth opportunity in battery manufacturing equipment

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Recent breakthroughs in e-mobility will result in unprecedented demand for electric vehicles (EVs), despite the economic and supply disruptions that resulted from the COVID-19 crisis. With this rising demand will come a huge jump in demand for batteries. Battery manufacturing is ramping up around the world to match local demand. To serve European EV manufacturing, established battery cell companies and emerging startups have announced plans to build combined production capacity of up to 965 gigawatt-hours (GWh) per year in Europe by 2030—accounting for 28 percent of 2030’s announced global capacity of around 3,500 GWh and increasing 20-fold from 2020.1

To meet growing demand, roughly 30 new battery-manufacturing facilities will need to come online across Europe, requiring up to €100 billion in capital expenditures (Exhibit 1). Roughly 60 percent of the total investment will be earmarked for battery cell manufacturing equipment. This translates to a €5 billion to €7 billion annual business opportunity for the manufacturing-equipment industry in Europe by 2025 and €7 billion to €9 billion in the second half of the decade.

Ramping up European battery production will create an annual business opportunity of €5 billion to €7 billion for the equipment industry by 2025.

In the battery cell manufacturing process, three steps require roughly equal shares of capital expenditures: 35 to 45 percent for electrode-manufacturing equipment, 25 to 35 percent for cell-assembly-and-handling equipment, and 30 to 35 percent for cell-finishing equipment (Exhibit 2). Some processes, such as coating and electrolyte filling, are either unique or highly specific to battery cell manufacturing. These processes require clean- and dry-room conditions and expertise in, for example, high-accuracy thin-layer deposition. Other processes, such as slitting, cell formation, and aging, are similar to processes that are widely used in other industries or require intramanufacturing-logistics equipment.

Electrode manufacturing accounts for the highest equipment-investment costs, followed by cell finishing and cell assembly.

A looming equipment supply shortage

Today, only a handful of companies that specialize in battery cell manufacturing equipment—used for slurry mixing, electrode manufacturing, cell assembly, and cell finishing—are operating in Europe; the majority are in China, Japan, and South Korea (Exhibit 3). However, most of these incumbent battery cell manufacturing suppliers are operating at more than 95 percent capacity, leaving little room to increase output. Moreover, they may prioritize orders from established customers (mostly leading incumbent cell manufacturers) over those from new market entrants from Europe and the United States. As a result, European battery cell manufacturing companies and EV OEMs who enter the field are likely to face a bottleneck in equipment supply that will place their planned start of production at risk. Securing equipment supply is a key success factor.

Most battery cell equipment suppliers are in China, Japan, and South Korea, with just a few in Europe.

European equipment manufacturers have an opportunity to capture a fair share of the revenue pool by becoming key suppliers to established cell manufacturers that are expanding into Europe and the United States, as well as to newly founded battery manufacturers, given their geographic proximity, which facilitates the installation, ramp-up, and support for equipment. Equipment manufacturers that already sell the needed equipment could expand their capacity to meet surging demand and approach existing and new customers. Meanwhile, manufacturers that do not currently sell the equipment needed to produce battery cells could leverage their existing machinery and equipment expertise from similar processes to pivot into this market. This article discusses the anticipated shortfall in equipment and presents options for equipment suppliers to fill this void.

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Responding to the urgent need for equipment and capturing the funding tailwind

EV OEMs and battery cell manufacturing companies will need manufacturing equipment to ramp up production fast and to ensure high factory production performance. Since the majority of announced new gigafactories have planned to start production prior to 2025, companies are making buying decisions about manufacturing equipment supply now. Furthermore, the emergence of new battery cell manufacturing companies planning to build gigafactories unlocks opportunities for equipment manufacturers to secure new supply contracts, rather than compete solely based on existing relationships with incumbent battery cell manufacturers.

The European Green Deal, national support schemes, pressure from activist investors, and broad stakeholder support for sustainable energy coalesce to give battery manufacturing equipment suppliers attractive access to public and private funding. Equipment manufacturers can take advantage of this favorable environment to support their growth plans in the battery cell industry. However, competition among equipment suppliers will intensify, requiring all involved stakeholders to carefully assess their existing operations and capabilities and craft strategies to make the most of this unprecedented opportunity.

Opportunities for equipment manufacturers to pivot

While equipment manufacturers that already have expertise and capacity for battery manufacturing equipment can use the beneficial funding environment to grow their businesses, others can capture the opportunity by pivoting their competencies.

Equipment suppliers to industries whose manufacturing process steps are comparable to those of battery cell production have a particularly advantageous starting position to pursue the battery opportunity. The high-capital-expenditure coating and drying process, for example, requires high-accuracy thin-layer deposition, with some similarities to what is needed in the paper, tape, glass, and technical textile–manufacturing equipment industries.

Cell assembly, which entails punching, stacking, winding, welding, and sealing, is relatively less specific to battery manufacturing, and more similar to general manufacturing and automation processes. The growth opportunity in battery cell manufacturing equipment can thus become an attractive opportunity for machinery companies looking for new growth markets to which they can transfer their existing skills and expertise.

Approaches for developing the competencies needed to compete

European equipment manufacturers looking to pivot to or expand in the battery cell equipment market can consider four pathways to developing the competencies they will need to effectively compete:

  • Build organically. Companies should analyze which of their existing competencies and skills can be applied or readily adapted to battery manufacturing processes and then choose which opportunities to pursue based on attractiveness and fit. They may pursue an entire manufacturing process—such as electrode manufacturing, cell assembly, or cell finishing—or a subset of steps within any of those processes. Building organically requires sufficient management attention and resources to accelerate the time to market. The best catalyst to create this situation is a sizable lighthouse project at the start.
  • Acquire. To fill gaps, companies can also acquire all or part of one or more existing battery manufacturing equipment companies, assuming the targets have the desired competencies and resources and can successfully integrate into the existing business. A prominent example is Tesla, which acquired equipment specialist Grohmann Engineering to secure access to equipment supply and know-how for its new gigafactories.2
  • Establish strategic partnerships. European equipment manufacturers can collaborate with other companies to build competencies in battery equipment. One prominent approach is to partner with a foreign supplier of cell manufacturing equipment that seeks to establish a local footprint and increase its capacity. For example, German mechanical-engineering company Dürr is expanding its market access to battery manufacturers through a partnership with Techno Smart, a leading Japanese manufacturer of coating systems.3 Another option is for two European companies to team up to expand their offerings. For example, in early 2021 Manz AG and GROB agreed on strategic cooperation in the field of lithium-ion battery systems to provide turnkey solutions.4
  • Establish joint ventures. Companies can jointly develop competencies in a dedicated new entity, assuming the partners have the complementary competencies needed to develop the new expertise, the entity is fully dedicated to this purpose, and all partners allocate sufficient resources and attention to the entity. In such instances, the joint-venture partner could also be the lighthouse project customer.

Determined equipment players, such as Manz, can strategically combine multiple pathways for accelerated and effective building of battery know-how, including acquisitions and strategic cooperation with both European and Asian partners. Likewise, Dürr took the first step into battery equipment around 2018, supported by the acquisition of American companies MEGTEC and Universal.5 Through the acquisition, Dürr gained competencies in coating systems for lithium-ion battery electrodes, which it further expanded through its strategic partnership with Techno Smart.

The leading equipment companies pay close attention to industry developments and battery manufacturer moves, seek partnerships, and join research initiatives and focused alliances.

Jump-start the opportunity

Equipment companies that are leading in the development of battery competencies exhibit several common characteristics:

  • Eagerness to scout opportunities. The leading equipment companies pay close attention to industry developments and battery manufacturer moves, seek partnerships, and join research initiatives and focused alliances.
  • Customer access. They have a deep understanding of requirement specifications of automotive OEMs—which are increasingly becoming gigafactory owners—and of battery-cell manufacturers, which determine the specifications of the manufacturing process.
  • Willingness to partner. They build successful partnerships with complementary equipment manufacturers and with customers to jointly develop new competencies. Partnerships can qualify manufacturers to provide integrated, ready-to-use equipment solutions, an increasingly important selection criterion for battery manufacturers and EV OEMs.
  • Deep product understanding. They build deep expertise of battery cell technology and follow the latest innovations, which allows them to align their equipment offerings to their customers’ increasingly complex design specifications. Going forward, manufacturing processes could even enable cell technology advancements such as high-silicon-content anodes (which may require prelithiation) and semisolid and solid-state batteries.

European manufacturers that are considering entering the battery cell manufacturing equipment market have numerous pathways to consider, but each requires moving quickly to avoid getting locked out of what promises to be a sizable and lucrative market. Now is the time to act as financing solidifies and gigafactory construction plans move forward. After carefully analyzing the competencies needed at each stage and substage of the battery cell manufacturing process, companies can assess whether they have the necessary expertise to address this new market demand, or can transfer or pivot adjacent expertise. Those that do not can still leverage their advantaged positions to participate through a strategic partnership, joint venture, or combination of the two. The best way to burnish your reputation, learn by doing, and establish a foothold from which to expand is to initiate a project with an existing customer or partner and deliver above expectations with respect to time, quality, and cost. Companies that approach the work thoughtfully and with an appropriate sense of urgency will reap the benefits of expanding into an exciting new market.

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