CEO Harald Krüger tells Handelsblatt the luxury carmaker is ordering billions of euros worth of batteries from CATL, frustrating EU hopes to support a European manufacturer.

We're in kind of a hurry.

BMW has just ordered several billion euros worth of batteries for its planned electric cars from the Chinese manufacturer CATL, Chief Executive Harald Krüger announced in an interview with Handelsblatt. Even though insiders said CATL will build a special factory in nearby Erfurt to supply the Munich automaker, BMW’s order runs afoul of efforts to cultivate a European producer.

Mr. Krüger said a European producer would make sense if it was competitive, but for now BMW needs a supplier “who is already there.” The automaker has said in the past that its top priority for batteries is a supplier who was nearby, so the agreement by CATL to build a huge factory in Germany satisfied that criterion.

Asian producers command a 90 percent market share of the lithium-ion batteries needed to power electric vehicles. In cooperation with Japan's Panasonic, US e-car pioneer Tesla has built its own “gigafactory” to make batteries. But German carmakers have shied away from making the investment in what is a low-margin and highly competitive market. Earlier this year, Bosch, one of the world’s biggest suppliers of auto components, decided against battery production because it would require a €20 billion ($23 billion) investment.

29 p34 Manufacturers of lithium-ion-01

Nonetheless, EU Energy Commissioner Maros Sefcovic has been pounding the drum for a European producer, complaining that Europe cannot be dependent on manufacturers in China and South Korea. Aside from startups like Northvolt and TerraE, the only battery venture is the recently announced joint effort by Total unit Saft and Siemens, which will focus on an advanced high-density battery.

Mr. Krüger said that the battery for BMW’s iNext sedan was a fifth-generation product developed in conjunction with the automaker. The rest of the electric powertrain will be produced in BMW’s own factories, he said. The e-car is due to go on the market in 2021.

Parallel to the purchase from CATL, BMW is investing €200 million in its own battery research in Munich. A late entry into the murderous lithium-ion market would result in the same fate that overtook solar panel producers when those became a commodity. The focus of research therefore is on the high-density batteries that would significantly increase the range for electric engines.

VW, for instance, has invested hundreds of millions in the US firm QuantumScape to help reach that breakthrough. But the earliest production would be in 2025, forcing the German carmakers for now to rely on the Asian producers.

Sven Afhüppe is editor in chief of Handelsblatt. Markus Fasse covers the auto industry. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the authors: [email protected] and [email protected].