Recently, it has been reported that domestic power battery company Hesai Energy Technology Co., Ltd. (hereinafter referred to as "Hesai Energy") has decided to suspend the construction of its two battery factory projects in Germany.

On October 26th, Hesai Energy exclusively responded to a reporter from Yicai, stating that due to reasons beyond Hesai Energy's control, the development of the European electric vehicle market has not met the expectations of all stakeholders, forcing the company to make a difficult decision to terminate the business operations of Hesai Energy Technology (Europe) Co., Ltd. ("Hesai Europe") and its German subsidiary, effective as of January 31, 2025.

Hesai Energy stated that it has always adhered to a long-term global strategy and the principle of "rooted in Europe, serving Europe" since entering the European market. Prior to making the decision to terminate the business operations of Hesai Europe and its German subsidiary, Hesai Energy had made substantial investments in Europe. Hesai Energy will actively and properly handle subsequent matters and will directly and individually contact existing European customers. In the future, Hesai Energy will redesign its European business operations around technical services, engineering services, warehousing logistics, and after-sales maintenance, continuing to focus on long-term sustainable development opportunities in the European market and considering future European strategic choices.

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Hesai Energy originally planned to build two factories in Germany, one being a battery module and assembly (Pack) factory located in Saarland, Germany, which was announced in November 2020 with a designed capacity of 24Gwh and a total investment of 2 billion euros, originally scheduled for completion in mid-2024; the other was planned to be built in the Lauchhammer area of Brandenburg, with a planned production start in 2025 and an annual capacity of 16GWh.

Some analysts believe that Hesai Energy's decision to halt the construction of German factories is a determination made based on its own situation, mainly constrained by the large-scale capital investment in the early stages.

In November last year, Hesai Energy intended to go public on the STAR Market of the Shanghai Stock Exchange, raising 15 billion yuan in funds for projects including power lithium-ion battery projects and technology development projects. Among them, 2 billion yuan of the raised funds were planned to be used to supplement working capital. However, by the end of last year, Hesai Energy and its sponsor withdrew the application for listing, and Hesai Energy's IPO was terminated.

There are reports that the reasons for the suspension of Hesai Energy's German factory construction include threats of international punitive tariffs and market distortions caused by long-term and uneven subsidy distribution. In addition, discussions within the EU about revoking the ban on internal combustion engines are also significant influencing factors. However, this news has not been confirmed by Hesai Energy. Nevertheless, Hesai Energy's largest customer, Great Wall Motors, has already closed its European headquarters in Munich, Germany, at the end of August.

It is worth noting that European local battery companies are also facing difficulties. In September this year, Northvolt, a local battery company highly anticipated by Europe, announced that it would lay off 1,600 people, accounting for about one-fifth of the total global workforce. In addition, Northvolt will also suspend the construction of a new manufacturing plant, implement production cuts and layoffs at its flagship factory; suspend the production of key battery components, cathode active materials, sell the Swedish factory previously planned for cathode material production, and seek a buyer for its energy storage business in Poland.

Furthermore, with the withdrawal of electric vehicle subsidies in major EU countries, EU electric vehicle sales have plummeted. Data from market research institution Dataforce shows that European pure electric vehicle sales in August plummeted by 43.9% year-on-year, marking the fourth consecutive month of decline.

Some analysts believe that Europe has a significant gap compared to China, Japan, and South Korea in terms of battery materials, technological accumulation, and industrial chain capabilities, with local power battery companies lagging behind their competitors in terms of technological advancement, cost, and efficiency. In June this year, there were reports that BMW withdrew a 2 billion euro car battery order due to Northvolt's inability to fulfill supply contracts on time.In the global market, China's battery company CATL (Contemporary Amperex Technology Co., Limited) consistently ranks first. In the global ranking of power battery installations, six out of the top ten positions are occupied by Chinese automotive companies, with the remaining spots held by Japanese and South Korean enterprises, while European battery companies have failed to make the list.

On August 17th last year, the European Union officially implemented the "EU Battery and Waste Battery Regulations," which require that from 2027 onwards, power batteries exported to Europe must possess a "Battery Passport" that meets the specified requirements. Additionally, the regulations have set clear demands on sustainable development issues such as carbon footprint, battery recycling, the use of recycled materials, and due diligence. This will impose constraints on both Chinese vehicle manufacturers and battery producers. Over the past two years, Chinese battery companies have been accelerating their overseas expansion, with some establishing factories in Europe. However, the introduction of policies like the EU Battery Law presents certain challenges to Chinese battery enterprises.