The EU aid is the second major European project for battery cell production. It follows a 3.2 billion-euro package to support a total of 9 billion euros of public and private spending that was approved in 2019.
The first program included aid for Opel and French battery manufacturer Saft to build electric vehicle battery cells at Opel's components plant in Kaiserslautern, Germany. It also included support for Sweden's Northvolt to operate a plant with Volkswagen Group in Germany, with BMW also participating in the Northvolt project and ordering billions' worth of batteries from the startup.
The German economy ministry said Berlin had made almost 1 billion euros available for the initial battery cell alliance and planned to support the second project with about 1.6 billion euros.
Asian battery giants including South Korea's LG Chem, Japan's Panasonic and China's Contemporary Amperex Technology Co. Ltd. also have said they are going to set up or expand operations in Europe.
Battery investment has poured in as Europe's stricter pollution standards forces automakers to embrace electric cars and limit carbon-dioxide emissions.
BloombergNEF is forecasting 1.9 million sales of plug-in hybrid and battery-electric vehicles in Europe this year, topping China and almost quadrupling the total expected in North America.
As part of the Green Deal, the EU wants to toughen its 2030 emissions-reduction target to at least 55 percent from 1990 levels, compared with the existing goal of a 40 percent cut. The overhaul is a key pillar of the region's strategy to recover from the coronavirus-induced recession.
European policy makers are aware the bloc's key industries risk falling behind if they do not fill manufacturing gaps in energy-storage technology. Lithium ion batteries will power plug-in hybrid cars and also help balance electric grids transmitting renewable energy including wind and solar.
China now hosts about 80 percent of the world's lithium-ion cell output, but the EU has said it could be self-sufficient by 2025.
The EU projects will cover the entire battery value chain, from extraction of raw materials, design and manufacturing of battery cells and packs, and recycling and disposal. The aid is expected to contribute to development of technological breakthroughs, including different cell chemistries, novel production processes and other innovations.
Tesla CEO Elon Musk has said the electric-car maker plans to add a battery-cell production facility at the vehicle-assembly plant it's building near Berlin. The site will initially have capacity of more than 100 gigawatt-hours a year and eventually ramp up to as much as 250 gigawatt-hours, Musk said during a battery conference in November.
"I'm pretty confident at that point it would be the largest battery-cell plant in the world," Musk said. He did not give time frames for when he expects the facility to reach those capacity levels.
The factory Tesla is building in the small town of Gruenheide will be the company's first in Europe. It's slated to start making vehicle in the middle of this year and eventually assemble as many as 500,000 cars annually.
Reuters contributed to this report