Three things the IAA gets wrong on batteries

EBA250 Brussels: The Cash Curve, The Brussels Parcour, and the Missing pCAM

A few weeks ago, I sat through a closed roundtable organised by EBA250 in Brussels, my second in a month. In a room were people from Verkor, ACC, and PowerCo, alongside a number of European Commission officials whose near-term job will be to decide how roughly €1.8 billion of new European battery money actually gets deployed. The strategic message from the Commission was unambiguous, and in itself genuinely new: decoupling the battery supply chain from China is now a stated priority, and the new financing instruments — principally the so-called Battery Booster, around €1.5 billion aimed at scaling cell manufacturing, and a separate €300 million envelope for localising upstream materials — are being structured around that goal. 

What was less clear, listening to the gigafactory operators in the room, was whether the instruments, as currently drafted, will do the job they are being asked to do. The gap between the Brussels strategic intent and company's operational situation is still there, and it seems that it won't be bridged any time soon.

The Cash Curve

The immediate gap, and the one on which Verkor, ACC, and PowerCo were notably aligned, is that ramp-up costs at gigafactories are running materially higher than internal plans had assumed. The support these companies need is not capex grants for the next line but operating support to get the lines they have already built through the long, ugly stretch between commissioning and stable yield. 

The Battery Booster, as currently designed, contemplates loans against working capital, repayable over one to two years. To anyone who has run a battery line through a ramp-up, that will read as a structural mismatch. When I was running RENERA, one thing that was clear was that the cash burn during ramp-up is not really working capital in the textbook sense. You are not financing inventory that will turn into receivables on a predictable cycle. Instead, you are financing the discovery process by which you learn how to operate your own factory at the cell-chemistry, equipment, and process-control level. That discovery does not amortise over a one- to two-year schedule. What the gigafactory operators in the room were politely asking for, and what they will say less politely in private, is that the proposed instrument is simply postponing a problem instead of fixing it. The Commission will end up reorganising the same balance sheets a year later under worse conditions.

The Brussels Parcour 

The second, related issue is that the Battery Booster is currently scoped to engage late in the production cycle, whereas the operators want access from C-batch onwards — that is, from the point at which final cell qualification with a customer is in progress, and commercial production is genuinely imminent. This is not a small distinction. C-batch is precisely the phase at which cash demand spikes hardest, headcount has to be in place ahead of revenue, fixed costs are running at full, and the temptation to cut corners on quality discipline is at its most dangerous. Money that arrives much earlier than commercial production has stabilised arrives, by definition, before the period of greatest risk. You can build a defensible case for any cutoff date, but if the policy goal is to get European cell capacity through the FOAK valley of death, the instrument has to engage with the part of the curve where the valley actually is.

There was also a procedural point made forcefully by ACC, which is worth repeating because it reveals how policy ambition can defeat itself. ACC's Innovation Fund application ran to over seven hundred pages, required two full-time employees over the duration of the process, and involved a number of external subcontractors. That is the cost of compliance for a company which, by the nature of what it is trying to do, has roughly nobody to spare. The operators in the room were explicit that they hope the Battery Booster application will be calibrated to the actual capacity of scale-up companies to absorb it. For a cleantech founder reading this from outside the gigafactory cohort, the lesson generalises: any European industrial policy instrument whose application burden is set without regard to the applicant's operational headcount is, in practice, designed for the companies that least need it.

The Missing pCAM

The most strategically uncomfortable point of the afternoon, however, was about pCAM. There is currently no manufacturing of precursor cathode active material in the European Union, and pCAM is not included in the local content requirements of the Industrial Adjustment Act. This is an odd gap to leave open in a strategy whose explicit purpose is decoupling, because pCAM is the chokepoint where Chinese supply chain dominance is most acute and most difficult to displace. Without European pCAM capacity, the European recycling industry has a structural demand problem, as pCAM producers are the principal buyers of black mass; a recycling facility that cannot sell its output into a regional pCAM customer is a recycling facility whose business case collapses, regardless of how clean the technology is or how favourable the permitting environment. You cannot build a circular European battery economy with the circle broken at its most important node, and you cannot meaningfully decouple from China by funding the cell layer while leaving the precursor layer unaddressed in both the financing instrument and the local content rules. 

The Takeaway 

What I took away from the day is that the strategic intent in Brussels is now in roughly the right place, which is genuinely new, and that the people drafting the instruments are listening, which is also new. What remains unresolved is the gap between the political shape of the instruments and the operational shape of a gigafactory ramp-up. The Battery Booster, as currently sketched, looks like an instrument designed by people who have not personally watched a cell line miss its yield targets for nine consecutive months while the working capital line is disappearing faster than anyone modelled. The next six months of consultation will show what the final design will reflect. 

If you are running a European battery scale-up and trying to think clearly about how to position your project against the Battery Booster, the localisation envelope, or the IAA local content provisions — particularly if you are between B-sample and C-batch and looking at a working capital gap that the current loan structure will not bridge — this is the territory I work in every week. You can find me at askerov.pro or book a call directly to talk through where your project sits on the FOAK cash curve and which of the new European instruments is worth the application effort.