How the Industrial Accelerator Act Can Help Avoid More Battery Factories Going Bust

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The new law should have a laser sharp focus on what needs to be onshored and localised.

By Julia Poliscanova and Diane Strauss

Another one bites the dust. Morrow Batteries is the latest in the sad saga of EU battery start-ups that have gone bankrupt. The company was burning through cash while it ramped up and, despite talks with investors, it could not inject extra capital on time.

The EU has talked more of the need to secure a homegrown battery industry ever since Northvolt announced bankruptcy back in early 2025, but it’s failing to fully walk the talk.

With no production-focused financial support in sight, and the promised Battery Booster financing facility still in consultation phases, the one meaningful industrial policy on the table is the newly announced Industrial Accelerator Act (IAA).

Among its many provisions, it attached Made-in-EU conditions to various public support schemes, such as subsidies for battery electric cars (BEVs). This is similar to the local content rules that other major regions, including the US, India and Indonesia are using to onshore critical cleantech industries.

Brussels resisted such local rules for years, claiming the WTO rulebook and open markets will see us through the fierce competition to dominate clean technologies and their supply chains. But seeing many companies go bust, the political taboo has finally been broken.

Does the new law hit the mark in securing the business case for local battery-makers? Not quite.

Swiss cheese

At first glance, the act (rightly) requires an increasing number of battery components, starting with cells, to be made in Europe for BEVs to benefit from public incentives. But the text is filled with exemptions that undermine its effectiveness and underscore the complicated political compromise that was needed for the proposal to clear the Commission.

For instance, BEVs that are sold into the corporate channel (which accounts for 60% of new cars sold) do indeed have to be equipped with batteries and battery components made in the EU if they want to benefit from national tax incentives. But that is not the case for BEVs sold into the private market, where “made in EU” is defined as all the countries the EU has signed a free trade agreement with.

This makes no sense given the strong conditions proposed on foreign direct investment across the bloc: why would a company bother with meeting strict IP or labour rules if it can simply set up factories in Morocco and get all the benefits?

Vicious circle

Worse still, all Made-in-EU requirements are subject to exemptions, based on the cost difference and availability of components. The latter is particularly preposterous as it makes local content contingent on the availability of local content itself. This risks undermining the demand boost needed for the local battery component manufacturers to get over the line with their investors.

Take cathode active material (CAM) for example. It is the most valuable component in a battery and it’s where our reliance on China is one of the highest. Our analysis shows that over 20 CAM projects announced across the EU and the UK to date can cover more than two-thirds of Europe’s demand by 2030. So, the potential for strategic autonomy is there.

But more than half of these projects are at medium or high risk of being cancelled or delayed. So, if you ask for European cathode material today, it’s not readily available because these projects have not yet secured final investment decisions. But if Europe requires local CAM to be used by 2030 (exactly the timeline feasible for local projects), this will send exactly the signal needed for investors to support the production.

Chinese battery but EU label

The second major loophole is the specific Made-in-EU methodology proposed for small electric cars. These affordable models will determine the success of European automakers in local and global markets, but today they rely mostly on Chinese-made lithium-iron-phosphate (LFP) batteries. LFP dependence is one of the biggest resilience risks for Europe.

Rather than creating a strong signal to invest in LFP locally, the IAA allows small BEVs with foreign batteries to qualify as Made in EU (provided they are assembled locally). This kills the business case to develop those factories locally, given the sheer cost and technological advantage of Chinese LFP.

Amending the text so that the Made-in-EU label is only given to small electric cars with homegrown batteries is key to give local LFP players, such as ElevenEs and IBU-tec, a chance to scale up.

Everything all at once

More broadly, the problem is that the act tries to onshore and localise everything all at once. The risk of relocating to low-cost locations looms over much of the automotive supply chain. But onshoring technologies and their supply chains will be a hard task. Laser sharp focus on what is critical from the resilience and supply chain weaponisation perspective is needed.

China is not after our seat belts or wind shields: its recent five-year plans clearly have batteries and electric cars in sight. And the weaponisation of battery graphite and rare earths shows that other battery components are likely to be next.

The IAA can be a lifeline for Europe’s struggling battery factories. But the complicated text needs to be turned into a laser sharp law that directs public incentives without exception to electric vehicles produced with locally-made batteries and their components. This will provide the strongest business case yet to invest in Europe.

Article from T&E.