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

The recent bankruptcy of Morrow Batteries underscores the ongoing struggles faced by European battery start-ups, highlighting the urgent need for effective industrial policies to support the region’s homegrown battery industry. Despite ambitious rhetoric from the EU about securing a local battery supply chain, practical financial backing remains limited. The Industrial Accelerator Act (IAA) has emerged as the most significant legislative effort to date, introducing Made-in-EU requirements tied to public incentives for battery electric vehicles (BEVs). This approach mirrors local content rules already employed by other major economies, aiming to stimulate investment and production within Europe. However, the IAA’s impact is diluted by numerous exemptions and complex provisions that weaken its intended effect. For example, while BEVs sold to corporate fleets must comply with strict local content rules to qualify for incentives, privately sold vehicles benefit from a broader definition that includes countries with free trade agreements, such as Morocco. This loophole undermines the act’s goal by allowing manufacturers to bypass stringent European standards and locate production outside the bloc. Furthermore, exemptions based on component availability and cost create a paradox where local content requirements depend on the existence of local suppliers, which are themselves struggling to secure investment. A critical vulnerability lies in the treatment of cathode active material (CAM), a key and high-value battery component heavily reliant on Chinese imports. Although numerous projects across the EU and UK could meet a significant portion of demand by 2030, many face cancellation or delays without clear investment signals. The IAA’s current framework fails to provide the necessary market certainty to encourage these projects to proceed, risking continued dependence on foreign suppliers. Similarly, small electric vehicles, which are vital for European automakers’ competitiveness, can qualify as Made-in-EU even when equipped with foreign lithium-iron-phosphate (LFP) batteries, further weakening incentives to develop local LFP production. The broader challenge is that the IAA attempts to address all aspects of battery supply chains simultaneously, rather than focusing strategically on the most critical components for resilience and supply security. Given China’s clear targeting of batteries and electric vehicles in its industrial plans, Europe must prioritise onshoring efforts where supply chain vulnerabilities are greatest, such as battery materials and components susceptible to geopolitical risks. To truly support the European battery industry, the IAA requires refinement to eliminate exemptions and ensure public incentives are exclusively tied to vehicles with genuinely local batteries and parts, thereby providing a robust business case for investment and production within the EU.