European battery supply chain readiness

The challenging timeline of the IAA

Formally introduced by the European Commission in March 2026, the IAA aims to reverse Europe’s industrial decline and reduce its heavy dependence on foreign markets, most notably China, which controls over 80% of global battery manufacturing. To achieve this, the act ties lucrative public procurement channels, government tenders, and consumer EV subsidies directly to the origin of a vehicle’s components. The proposed regulation implements a strict, two-phased localization timetable:

Phase One (2027–2028): Just six months after the text enters into force, any electric vehicle qualifying for public incentives must feature a traction battery containing at least three EU-origin components, explicitly including the battery cells themselves.
Phase Two (2030–2031): Three years post-adoption, the threshold escalates sharply. Batteries must incorporate at least five EU-origin components, adding highly complex elements such as the Battery Management System (BMS) and Cathode Active Materials (CAM) to the mandatory localized sourcing list.

Additionally, the IAA seeks to protect this burgeoning ecosystem by imposing a strict approval regime on foreign direct investment (FDI). Non-EU investments exceeding €100 million from nations holding more than 40% of global capacity face stringent localization, technology transfer, and joint-venture conditions to gain approval.

The core verdicts: a structural sourcing mismatch

The Mobility Global study evaluates Europe's battery preparedness across three distinct demand scenarios, ranging from baseline public fleets to a high-demand "full market" scenario encompassing private buyers utilizing purchase incentives. The conclusions are uniform across the board: in all but one scenario, local supply cannot catch up with legally mandated demand.

Even though European battery cell production capacity is projected to climb steadily to 306 GWh by 2032, the timeline envisioned by the IAA creates an immediate bottleneck. The report highlights that the continent simply lacks the upstream infrastructure needed to supply these upcoming gigafactories. The deficit is particularly staggering for key chemical compositions such as Lithium Iron Phosphate (LFP). European manufacturers remain heavily reliant on Chinese supply chains for LFP, and local alternative facilities cannot scale quickly enough to meet the 2027–2028 deadlines.

The manufacturing shortfall cascades further down the tier list. The study predicts that fewer than 5% of battery cells deployed in EU-built heavy-duty trucks will feature EU- or UK-sourced Cathode Active Material (CAM) by 2027. This means that the vast majority of vehicles rolling off European production lines would instantly fail to qualify for local subsidies, leaving domestic automakers at a massive competitive disadvantage.

Broad risks to the automotive sector

The timing of these strict mandates could not be worse for an industry already under immense financial strain. Profitability among European automotive suppliers plummeted from 7.4% in 2017 to just 5.1% in 2023, precipitating more than 100,000 job cuts between 2024 and 2025. High energy costs and inflation have already caused several high-profile European gigafactory projects to stall or be cancelled entirely.

Forcing rigid local-content rules before the supply chain is mature carries severe unintended consequences. ACEA warns that if truck and car manufacturers cannot source qualifying batteries domestically, they face a double blow. Not only will they lose access to domestic public procurement, but they also risk violating the rules of origin established under the EU-UK Trade and Cooperation Agreement. This failure would trigger steep tariffs on electric vehicles exported to the United Kingdom, further crippling Europe’s broader automotive export economy.

Strategic recommendations from ACEA

Confronted with the data from the Mobility Global Impact Assessment, ACEA is urgently lobbying EU policymakers for a more pragmatic approach. The association argues that while the long-term goals of the IAA are vital for strategic sovereignty, the current execution strategy is flawed.

ACEA is calling for several critical legislative revisions:

Segment-specific timelines: Policymakers must decouple the regulatory timelines of heavy-duty commercial vehicles from those of passenger cars. Trucks require entirely different battery chemistries and face longer development cycles, necessitating a delayed localization runway.
Conditional sourcing mandates: Sourcing requirements must not be absolute calendar targets. Instead, they should be pegged to actual, verifiable milestones in European upstream raw material and component capacity.
Temporary tariff relief: The EU should coordinate a temporary relaxation of rules of origin with trade partners such as the UK to avoid punishing regional manufacturers while the supply chain scales up.

The Mobility Global study demonstrates that legislating demand does not automatically create supply. If the European Union wants the Industrial Accelerator Act to succeed, it must pivot from imposing restrictive legal thresholds to actively building the competitive operating conditions, raw material security, and robust investment frameworks required to make localization physically possible.