Stellantis Powers EV Growth with CATL Battery JVs Despite EU Supply Chain Risks

Stellantis and CATL have moved beyond announcements to action with an inaugurated €4.1 billion joint venture for a lithium iron phosphate (LFP) battery gigafactory in Zaragoza, Spain, targeting 50 GWh annual capacity. This carbon-neutral facility, powered by 80% renewable energy, leverages the recent 20% drop in global EV battery prices to $115/kWh to produce affordable mass-market vehicles like the Citroën C3/ë-C3. The plant's focus on LFP technology directly supports Stellantis's strategy to offer competitive pricing, with production expected to start by late 2026.

The joint venture enables dual-chemistry battery production (LFP and NMC) for the STLA Medium platform, aligning with strong market demand signals. Over 90,000 orders for new B-segment models, including the Citroën C3, demonstrate robust consumer interest and early penetration in Europe's competitive EV segment. This momentum feeds into Stellantis's Dare Forward 2030 sustainability strategy, which targets carbon neutrality in production by 2038.

However, the ambitious scale of this investment faces real-world hurdles. European regulatory shifts, including reduced EV subsidies and geopolitical risks like U.S. tariffs on Chinese imports, could complicate local supply chains and delay price parity with internal combustion engines. Execution risks, such as managing the timeline for gigafactory operations, also loom large, requiring careful navigation to sustain growth without overextending resources.

Competitive Differentiation in Stagnant Markets

Building on the broader market dynamics, Europe's electric vehicle sales stalled at just 20% market share in 2024, while China captured two-thirds of global EV sales at 67%. This divergence reflects Europe's policy gridlock-subsidy cuts and inflexible CO₂ targets dampened consumer demand, whereas China's aggressive pricing and trade-in incentives propelled growth. Amid this turmoil, Stellantis has defied sector-wide declines through strategic new launches, including the Peugeot e-208 and Fiat 500e, which outperformed regional rivals with higher retention rates and stronger dealer incentives.

However, the pressure is mounting. Renault's Ampere subsidiary, partnering with CATL and LG, is aggressively localizing battery production to slash costs by 20% by 2026. This threatens Stellantis' margin structure unless it accelerates its own supply chain localization. Meanwhile, Chinese firms dominate EU greenfield investments, accounting for 83% of EV-related projects in 2024, with Hungary hosting multiple battery plants. While this boosts regional capacity, EU regulators have tightened scrutiny over technology transfer risks and overcapacity.

Stellantis' bet on localized partnerships-with CATL's Hungary gigafactory and European sourcing-could mitigate cost pressures and regulatory friction. Yet China's entrenched market control and regulatory headwinds remain dual threats. If Stellantis fails to scale its localized model while navigating EU policy shifts, its advantage may erode against Renault and Chinese-backed rivals.

Strategic Risks & Regulatory Guardrails

But while Stellantis pushes ahead with its European localization playbook, an undercurrent of vulnerability is building around critical mineral supply chains and a tightening regulatory environment. The EU's electric vehicle ambitions hinge on critical raw materials that are overwhelmingly sourced from outside Europe. Magnesium, a key lightweighting metal for batteries and chassis, is 97% imported from China, while 63% of the cobalt needed for cathode chemistry comes from the Democratic Republic of Congo. Those dependencies undercut the logic of Stellantis's Zaragoza plant localization plan, because any disruption in those flows can halt production even if the vehicle assembly line operates smoothly. In effect, the localization play is only as strong as the global mineral pipeline.

Regulatory guardrails are thickening across Europe. The European Critical Raw Materials Act is fast‑tracking domestic extraction, processing, and recycling targets, but approvals for new mines and processing facilities remain on a 2025 timeline, creating a risk that supply bottlenecks persist well into the decade. At the same time, Chinese greenfield FDI-which accounted for 83% of all Chinese investment in Europe in 2024-faces intensified screening. EU authorities are expanding investigations into technology transfer and overcapacity concerns, and Chinese FDI in Europe reached EUR 10 billion in 2024. Two new battery plants slated for 2025 could be delayed or canceled amid the heightened scrutiny. The combination of stretched timelines and tighter FDI vetting means the EU's push for local supply is vulnerable to regulatory shocks.

Even if the EU manages to secure local supply, global overcapacity is pressuring battery prices to $115 per kilowatt‑hour-a 20% fall from recent years. That cheaper cost could prompt U.S. policymakers to impose tariffs on Chinese imports to protect domestic manufacturers, which would raise the price of imported battery cells and disrupt Stellantis's pricing models for its upcoming EVs. Such a tariff escalation could erode the margin benefits that lower battery costs otherwise deliver. While localization offers upside, these threats could stall the growth thesis and create execution uncertainty.

Catalysts & Scenario Implications

The most immediate catalyst for Stellantis is the 2025 regulatory approval deadline for its €4.1 billion Zaragoza LFP battery plant, a joint venture with CATL targeting 50 GWh capacity by 2026. Securing this permit is critical; delays could stall the affordable EV expansion central to its Dare Forward 2030 plan. Success here enables lower-cost battery packs, potentially unlocking significant market share gains in Europe. Critically, however, execution risk remains high, as plant commissioning targets rely heavily on overcoming local and EU permitting hurdles.

Conversely, the European Union's push for battery recycling targets-aiming for 25% of annual needs recycled by 2030-acts as a potential risk mitigator for Stellantis. Achieving this ambitious goal could stabilize raw material supplies and prices long-term, reducing dependency on volatile global mining. However, meeting this target requires massive investment in new recycling infrastructure, which may not materialize quickly enough to alleviate near-term pressure.

Competition is intensifying. While Chinese greenfield FDI in Europe surged to €10 billion in 2024, dominated by EV projects accounting for 83% of that greenfield investment, increased regulatory scrutiny threatens this flow. Partnerships like those involving VW could accelerate competition, but Stellantis's localized Zaragoza supply chain, if realized, offers a potential differentiation advantage against broader industry tensions. The path forward hinges on clearing the Zaragoza approval hurdle and demonstrating scalable production, which would validate the long-term logic of its dual-chemistry strategy and materially boost its valuation case, though significant execution and competitive risks persist.