Back in the mists of time – 2017 to be precise – the then Business Secretary Greg Clark announced ambitious plans to catapult Britain to the forefront of the global electric vehicle battery manufacturing industry. At the heart of his initiative was the establishment of the Faraday Challenge – essentially a series of government-sponsored competitions designed to promote research and development. This was good news for startups working in the field.
So, how are things going five years on? Well, according to a report published this week by the Green Finance Institute, there is still a window of opportunity for the U.K. to become a significant player in this market. But – and this is a very big but – that won’t happen without finance.
As things stand at the moment, the EV battery industry is worth around $41 billion with China holding about 85 percent of the market share. According to the GFI report, the market value is set to rise to between $116 and $278 billion by 2030 and that expansion will make space for other nations to build their battery industries. The United Kingdom’s share could be $24 billion.
Scaling Up Startups
The report suggests the U.K. could build capacity in one of two ways. Either major manufacturers will be persuaded to establish factories with local supply chains. Or Britain will build a domestic industry by scaling up startups. Equally, of course, it could be a combination of the two.
But here’s the thing. The key to developing and scaling startups is money. Without capital, the opportunity could be lost. “There is a window of opportunity but it is rapidly closing,” says Lauren Pamma, Program Director at the Green Finance Institute. “With this report, we want to raise investor awareness of the need to invest in the battery supply chain.”
You might be forgiven for thinking this is a done deal. China’s current dominance of the market is likely to continue and elsewhere in the world major automotive industry players are making their own investments. So is the report simply creating a debate around a market that for all intents and purposes is already well along the road to being carved up?
Pamma insists there is still a lot to play for. In terms of the U.K., she says: “We are not competing for market share with China. But we can capture some market share.”
A Role For Entrepreneurs
But will that benefit the startup companies that are currently developing technologies or will Britain’s battery sector be dominated by corporate businesses? Pamma says entrepreneurial businesses will have a role. “There are a lot of opportunities for SMEs – such as in anode, cathode manufacturing and electrolyte supply,” she says.
But there is a caveat. “This is a very capital intensive business,” she says adding that it requires sums of money that VCs have been traditionally reluctant to commit. Equally – and in common with a lot of hardware-based Greentech projects – the timelines to market are longer. Again a deterrent for VCs.
Attracting The Capital
So what can be done to improve the flow of cash? Well, the government has been pump-priming the battery sector to the tune of £318 million through the aforementioned Faraday Challenge and there is a £1 billion Advanced Propulsion Centre providing funding. Further cash is being channeled through the U.K. Battery Industrialisation Centre, which was set up to help with the development of products.
But Pamma says more needs to be done to encourage equity investment. To date, this sector doesn’t appear to be a cash magnet and only partly because of the sums involved. “There is also a lack of investor knowledge,” says Pamma. “And there’s a time factor. Small startups don’t have the time to pitch to maybe 40 possible investors.”
Pamma suggests that the focus of government support could move from grants to measures to incentivize or de-risk investment. You can use funding to provide guarantees,” she says. “For instance, credit enhanced or revenue guarantees.”
That would, of course, depend on a switch in government thinking. The GFI – seed-funded as it is by the state – is talking to the Treasury and Business ministry as well as the Infrastructure Bank. To date there is access but no concrete policy response to the Institute’s suggestions.
Why is this important? Certainly, the U.K. will benefit in economic terms from having a domestic battery manufacturing base. It is also important to support U.K. science and R&D make the journey from the labs to the production line.