How nearshoring and battery localisation are reshaping Europe’s EV supply chain amid shifting demand, Chinese competition, and policy shifts

The European automotive industry is increasingly adopting nearshoring and battery localisation strategies to enhance supply chain resilience, reduce costs, and meet sustainability goals.

This shift is driven by various factors, including geopolitical tensions, trade disputes, and the imperative to transition to EVs. However, as these trend drivers have shifted and consumer demand for EVs has been weaker than expected, the landscape of battery material nearshoring in Europe has evolved.

While the strategy is taking shape, it is far from linear – Northvolt is facing collapse, and OEMs are pressing pause or pulling out of key battery investments. How will this trend unfold, and what role will Chinese OEMs play in localising battery production in Europe?

How battery localisation is transforming Europe’s automotive supply chain

The trend towards nearshoring – relocating production closer to the end market – has gained momentum in Europe due to recent global disruptions. Trade disputes and geopolitical uncertainties have accelerated this movement, prompting automotive companies to reconsider their supply chain strategies. By bringing production closer to home, companies aim to mitigate risks associated with long-distance logistics and improve responsiveness to market changes.

Localising battery production is a critical component of Europe’s strategy to support the burgeoning EV market. Given the weight and transportation challenges of batteries, producing them closer to vehicle assembly plants reduces logistics costs and environmental impact.

The European Battery Alliance (EBA), established in 2017, exemplifies the continent’s commitment to developing a sustainable and competitive battery manufacturing value chain. The EBA aims to ensure that Europe benefits from the technological evolution in the EV market by fostering collaboration among stakeholders to establish a robust battery ecosystem.

In Central and Eastern Europe (CEE), logistics firms are adapting to nearshoring by embracing digitalisation and adjusting to supply chain disruptions.

Read more: Economic headwinds shake CEE automotive logistics as nearshoring and geopolitical shifts reshape supply chains

This region’s strategic location and cost advantages make it an attractive hub for automotive manufacturing and logistics, supporting the broader nearshoring trend.

European OEMs double down on localisation – but face roadblocks

Many European OEMs have been strategically focusing on strengthening their supply chain through localisation on the continent, but the road has not been easy, with many starts and stops along the way.

VW Group is one of the more prominent carmakers that have stressed their intent to localise EV supply in Europe but faced setbacks due to faltering demand.

In June last year, the group decided to make all-electric entry-level mobility more widespread with affordable EVs made in Europe, for sale in Europe. With its Wolfsburg plant in Germany as the heart of the supply chain and arteries to two battery cell factories in Sweden, VW Group planned to increase resiliency by centralising its supply chain.

However, this strategy faltered when VW’s joint venture partner Northvolt halted the expansion of its gigafactory in Skellefteå, Sweden. Following this, the lithium battery maker filed for bankruptcy in late 2024 due to production and funding issues, leaving VW exposed. However, the carmaker still has its PowerCo division, which is building facilities in Salzgitter, Germany and Valencia, Spain. VW had also been looking at building a fourth plant in the Czech Republic, Hungary, Poland or Slovakia, but delayed a decision in 2023 of lagging EV demand.

Mercedes-Benz and Stellantis are also localising their battery supply chains for EVs, taking a comprehensive approach from research and development through raw materials to series production. 

In the case of Mercedes-Benz, its EQ EV model is supplied by local battery production in Germany, both at Untertürkheim, in the Hedelfingen and Brühl parts of the complex, and Kamenz, Jawor in Poland, and further factories in Germany at Kölleda and Sindelfingen, and Kecskemét, Hungary have also been announced. While the OEM still sources battery cells from different partners globally, it moved to secure a localised raw materials procurement strategy through a deal with lithium refiner Rock Tech in 2022.

Along with Stellantis and Total Energies, Mercedes-Benz took an equal stake in Automotive Cells Company (ACC), which would also provide battery cells locally.

ACC raised €4.4 billion ($4.7 billion) in debt funding for the construction of three gigafactories in Europe in addition to its gigafactory currently in operation in Billy-Berclau, France. However, ACC halted plans for the German and Italian battery facilities in June 2024 to weigh up different battery chemistries. Currently, ACC has not confirmed whether it will fully commit to a specific battery technology, with the sites still on hold.

Companies like Flexis are also contributing to battery localisation by leveraging existing networks to build a strong regional production and supplier base. The OEM, formed in October 2023 in a joint venture between Renault, Volvo and logistics provider CMA CGM, strategically based itself in Renault’s home nation of France, using the carmaker’s Sandouville plant for the production of its electric light commercial vehicles (LCVs). Flexis’ CEO Philippe Divry told Automotive Logistics that Flexis aims to localise battery production in Europe and leverage the parent companies’ existing logistics networks, with some suppliers even set to move operations within the Flexis factory or closer to it, to enhance that localisation.

The impact of EU tariffs and how Chinese OEMs are reshaping the European EV market

Chinese EV makers have been targeting European markets with price-competitive models in recent years, presenting a threat to the European OEMs. As a result, nearly half of EVs exported from China are now sold in Europe, according to the Financial Times, including non-domestic EV makers such as Tesla.

With declining exports and increasing imports from China, Europe’s automotive landscape is shifting. While North America has taken a protectionist stance and implementing increasingly high tariffs against Chinese EV imports, Europe has taken a more measured approach, with no EV battery tariffs, to help encourage trade and overall EV adoption. Many European produced EVs are heavily reliant upon Chinese battery imports, prompting the European Commission to strike a more careful balance.

Read more: Trade disputes accelerate nearshoring trend with implications for logistics providers

In October last year, the European Commission concluded an anti-subsidy investigation on EVs from China and imposed definitive countervailing duties on imports of BEVs from China for a period of five years. The investigation found that the BEV value chain in China “benefits from unfair subsidisation which is causing threat of economic injury to EU producers of BEVs”, and as a result the commission imposed duties on BYD, Geely and SAIC of 17%, 18.8% and 35.3% respectively. Other companies that cooperated with the investigation will be subject to a duty of 20.7%, while Tesla will face a 7.8% duty, and non-cooperating OEMs will have a duty of 35.3%. By investigating each Chinese carmaker individually, the commission said it is ensuring the effectiveness and fairness of duties.

Of course, with Trump’s most recent tariff announcements, the EU could change its stance to become more protectionist.

In Automotive Logistics’ first livestream of the year, Matthias Schmidt, European autos analyst and founder of Schmidt Automotive Research said that while Chinese market share in West Europe last year was only around 3%, it is likely to grow from this year onwards, as opportunities open up for Chinese OEMs. 

“The logistics side is going to open up, with more supply of vessels coming to market,” he said. “The EU have just slammed tariffs onto Chinese manufacturers, so the door is being slammed shut on Chinese OEMs just as a logistical door is being opened.”

He said: “Chinese OEMs are changing tack and focusing on non-EU markets, and by that we mean the UK. We expect that a trend going forward in 2025 is that Chinese OEMs will target the UK as that is navigating tariffs nicely for them.”

This shift away from Chinese production has been evident in recent months, with OEMs favouring European localised production, helping to avoid tariffs. 

BMW has stopped Chinese production of its IX3 model and is replacing it with the European-manufactured Neue Klasse, which will be produced in Hungary this year. Geely has shifted production of its Volvo EX30 model from Zhangjiakou in China to its Belgium plant to avoid import tariffs.

And in January, Polestar announced its plans to make the Polestar 7 premium compact SUV in Europe, expanding sales to France this summer using agency model distribution. Polestar said the move would strengthen its global manufacturing network, and that locating production in Europe would help improve operational, commercial and financial performance.

Chinese EV maker BYD Auto is currently building an EV assembly plant in Szeged, Hungary – a significant development as it will be the first plant of its kind to be built by a Chinese carmaker in the continent.

On top of this, it has been reported by Reuters that Chinese officials and carmakers are seeing opportunity in German factories set to close. Weak demand, economic difficulties and cost-cutting measures are forcing OEMs like VW to close or downsize factories in the country, leaving valuable brownfield sites ready for the taking. If this were to happen, Chinese OEMs would gain a significant presence in the European market and potentially circumvent tariffs.

The outlook for European battery material localisation

While the EU is making concerted efforts to localise battery material production and reduce costs in electrification, the strategies of Chinese EV-makers are presenting challenges.

The market is at a turning point, but there are opportunities for European OEMs. Daniel Harrison, inhouse automotive analyst, Automotive Logistics said: “There are still investments going on, and there are still growth areas. It could lead to a more positive, proactive response, including investment in digitalisation, better visibility and transparency, scenario planning and new routes and flows.”