By Marcin Goettig
WARSAW (Reuters) - South Korea's LG Chem will open Europe's largest lithium-ion battery factory in Poland next year as the region's auto industry gears up to mass produce electric cars.
Tumbling battery prices and growing pressure to cut exhaust emissions have led carmakers to embrace electric vehicles. Manufacturers from VW Group to Volvo Cars, Daimler and BMW plan to roll out a raft of new electric models in coming years.
But Europe lacks big-scale battery cell production facilities so those components are mostly imported from China and South Korea.
Calls are now growing for the region to develop its own battery industry to preserve jobs and profits, though Asian producers have a huge head start in development and scale.
LG Chem plans to spend 5.9 billion zlotys ($1.63 billion) on the factory near the southwestern city of Wroclaw, according to Polish state industry agency ARP.
Wroclaw is 190 kilometers (118 miles) from the border with Germany, home of VW Group which plans to invest more than 20 billion euros ($24 billion) in zero-emission vehicles by 2030 and make 3 million electric vehicles (EVs) a year by 2025.
LG Chem expects to produce up to 100,000 EV batteries in Poland annually from next year, it said on Thursday in a statement.
The factory will employ 2,500 people. LG Chem, a subsidiary of Korea's LG Corp, did not name the likely customers but said they would include top car companies.
"The company has chosen Poland as the most competitive location for production to satisfy the needs of European and global car producers," said Chang-Beom Kang, vice president at LG Chem.
It was not immediately clear if the factory would produce all the basic battery cells from scratch or import some components, but the statement said the site would include a research and development center employing "about 400 engineers from various specializations: automation, electronics, chemistry and IT".
Asked about the source of lithium and other raw materials, a representative of LG Chem's local arm said they would first be imported from the parent company in Korea and then hopefully from Polish suppliers.
The factory's planned capacity is just a fraction of expected future demand.
Based on the typical capacity of a mid-market compact car like Nissan Leaf, 100,000 car batteries are equivalent to 4 GWh per year. This means the factory's capacity could be slightly more than 10 percent of the production capacity that Tesla's U.S. based "Gigafactory" is to reach in 2018.
Battery costs have been prohibitive but are falling rapidly. Average battery costs have come down from over $1,000 per kilowatt hour in 2010, to around $227 in 2016, according to analysts at Barclays.
In 2016, only 0.2 percent of new passenger cars sold in Europe were fully electric.
But Britain and France say they will ban the sale of new petrol and diesel cars from 2040 in an attempt to reduce air pollution, ending use of the fossil fuel-guzzling internal combustion engine.
LG's Polish plant may not remain Europe's largest car battery plant for long.
In September, Swiss engineering group ABB said it had joined a project to build Europe's largest lithium-ion battery factory in Sweden targeting annual cell production equivalent to 32 gigawatt-hours by 2023, over 90 percent of Tesla's Gigafactory target.
That project, named Northvolt, is led by a former manager at Tesla, which also plans to build a Gigafactory in Europe, though it has not said where.
(Reporting by Marcin Goettig; additional reporting by Laurence Frost; editing by Tom Pfeiffer)