Stellantis has inked a joint venture with Chinese battery giant CATL to establish a lithium iron phosphate (LFP) battery plant in Zaragoza, Spain. Up to €4.1 billion (~$4.31 billion) will be invested into the new site, with production scheduled to start by the end of 2026. When fully operational, the facility will have a capacity of up to 50 GWh.

This new plant will be located alongside the existing Stellantis facilities in Zaragoza. Batteries produced there will be used in the group’s battery-electric passenger cars, crossovers, and SUVs competing in the B and C segments. Stellantis has not confirmed which of its models will be the first to use these new locally-made LFP cells, but notes the plant’s capacity is “subject to the evolution of the electrical market in Europe and continued support from authorities in Spain and the European Union.”

Read: Ex-CEO Tavares Personally Killed The Hemi V8, Stellantis Insiders Reveal

“Stellantis is committed to a decarbonized future, embracing all available advanced battery technologies to bring competitive electric vehicle products to our customers,” Stellantis chairman John Elkann said. “This important joint venture with our partner CATL will bring innovative battery production to a manufacturing site that is already a leader in clean and renewable energy, helping drive a 360-degree sustainable approach. I want to thank all stakeholders involved in making today’s announcement a reality, including the Spanish authorities for their continued support.”

The battery plant has been designed to be completely carbon neutral and will be implemented in several phases and investment plans. Stellantis says the site will also help it on its path to becoming a carbon net zero corporation by 2038.

“The joint venture has taken our cooperation with Stellantis to new heights, and I believe our cutting-edge battery technology and outstanding operation knowhow combined with Stellantis’ decades-long experience in running business locally in Zaragoza will ensure a major success story in the industry,” CATL chairman and chief executive Robin Zeng added. “CATL’s goal is to make zero-carbon technology accessible across the globe, and we look forward to cooperating with our partners globally through more innovative cooperation models.”

Electric vehicles may be gaining popularity worldwide, but the path to mass adoption remains challenging. In Europe, where EV incentives have historically fueled sales, several countries are planning to scale back or overhaul their subsidy programs in 2025, a shift that could hinder growth in one of the key markets for electrification.

France is leading the charge with some of the most significant changes. As part of its 2025 national budget, the government is slashing its EV subsidy program’s budget from €1.5 billion to €1 billion. Currently, French buyers can receive between €4,000 (around $4,200 at current exchange rates) and €7,000 ($7,300) in subsidies for EVs priced under €47,500 ($49,900). In 2025, those subsidies will be cut nearly in half, dropping to between €2,000 ($2,100) and €4,000 (~$4,200).

Leasing Scheme Changes Hit Low-Income Families

The country is also dialing back its innovative EV leasing program. This scheme, which allows low-income households to lease a small EV for €100 ($105) per month or a larger family electric car for €150 ($157) per month, proved so popular that it had to be paused just two months after launching due to overwhelming demand. In 2024, the program received €650 million ($682 million) in funding, but next year, the budget will be slashed to €300 million ($315 million), according to Rho Motion.

Read: EV Sales Drop 10.8% In EU As Buyers Flock To Hybrids

Meanwhile, Spain is making changes to its EV incentive scheme, which has had a €1.55 billion ($1.62 billion) budget. Buyers currently receive up to €7,000 ($7,300) for electric cars, €9,000 ($9,400) for commercial EVs, and additional subsidies for motorcycles and scooters. Starting next year, Spain will introduce direct payments for these incentives, meaning customers will no longer face delays of up to two years to access their subsidies. While this change will streamline the process, details on the program’s overall budget and scope remain under wraps.

Subsidy Cuts Already Hitting Germany Hard

The ripple effects of cutting EV incentives are already being felt. Germany, one of Europe’s largest EV markets, experienced a steep decline in sales after its government slashed subsidies in December 2023. EV sales in the country plummeted 69% in August compared to the previous year, following drops of 37% in July and 16% in June.

The same report from Rho Motion notes that battery electric vehicles (BEVs) are still, on average, 75% more expensive than their internal combustion engine (ICE) counterparts. Subsidies and tax incentives remain critical tools for driving EV adoption and making them accessible to more consumers.

As Europe scales back financial support for EVs, the industry may face an uphill battle to maintain its current momentum.