Why UK EV battery startups need financial backing
Back in the mists of time – in 2017 to be precise – then Business Secretary Greg Clark announced ambitious plans to propel Britain to the forefront of the global technology industry. manufacture of batteries for electric vehicles. At the heart of his initiative was the creation 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 later? Well, according to a report released this week by the Green Finance Institute, there is still a window of opportunity for the UK to become a significant player in this market. But – and this is a very big but – it will not happen without funding.
As it stands, the electric vehicle battery industry is worth around $41 billion, with China holding around 85% of the market share. According to the GFI report, the market value is expected to reach between $116 billion and $278 billion by 2030 and this expansion will leave room for other countries to develop their battery industries. The UK’s share could be $24 billion.
The report suggests the UK could build capacity in two ways. Either large manufacturers will be persuaded to establish factories with local supply chains. Or Britain will build a national industry by developing startups. Also, of course, it could be a combination of the two.
But here’s the thing. The key to growing and scaling startups is money. Without capital, the opportunity could be lost. “There’s a window of opportunity, but it’s closing fast,” says Lauren Pamma, program director at the Green Finance Institute. “With this report, we want to make investors aware of the need to invest in the battery supply chain.”
You could be forgiven for thinking it’s a done deal. China’s current market dominance is set to continue and elsewhere in the world major players in the automotive industry 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 down the road to fragmentation?
Pamma insists that there is still a lot to play for. Regarding the UK, she says: “We are not competing for market share with China. But we can capture market share.
A role for entrepreneurs
But will it benefit startups currently developing technology or will the UK battery sector be dominated by corporations? Pamma says entrepreneurial businesses will have a role to play. “There are many opportunities for SMEs – such as in the manufacture of anodes, cathodes and the supply of electrolytes,” she says.
But there is a caveat. “It’s a capital-intensive business,” she says, adding that it requires amounts of money that VCs have historically been reluctant to commit. Likewise – and as with many hardware-based Greentech projects – time to market is longer. Again a deterrent for VCs.
Attract the capital
So what can be done to improve cash flow? Well the government has bootstrapped the battery business to the tune of £318m thanks to the above Faraday Challenge and there are 1 billion pounds AAdvanced propulsion center provide funding. Additional cash is channeled through the UK Battery Industrialization Centerwhich was created to help with product development.
But Pamma says more needs to be done to encourage equity investment. To date, this sector does not seem 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 is a time factor. Small startups don’t have time to pitch to maybe 40 potential investors.
Pamma suggests that the focus of government support could shift from subsidies to measures to encourage or reduce investment risk. You can use the funding to provide collateral,” she says. “For example, improved credit or income guarantees.”
This would, of course, depend on a change in government thinking. The GFI – financed in the beginning by the State – is in talks with the Ministry of Treasury and Business as well as with the Infrastructure Bank. To date, there is access, but no concrete policy response to the Institute’s suggestions.
Why is this important? Certainly the UK will benefit in economic terms from having a domestic battery manufacturing base. It’s also important to help UK science and R&D make the journey from the lab to the production line.