Automotive: Volkswagen to acquire stake in both Chinese battery supplier and NEV carmaker

Volkswagen AG is reportedly in final talks to close two investment deals in the Chinese EV space, with EV manufacturer JAC and battery maker Guoxuan High-Tech. The German carmaker is expected to acquire 50% of Anhui Jianghuai Automobile Group Holding, the parent company of EV partner JAC Motors, for US$491M. It is also set to become the largest shareholder in battery maker Guoxuan High-Tech, a deal in the making since January 2020.

The deals would make Volkswagen the latest foreign automaker to increase ownership in China since the Chinese government started to relax ownership rules for the EV space in 2018. After completing the deal, Volkswagen plans to build on its EV venture with JAC by adding additional manufacturing capacity through its proprietary MEB platform. In parallel, Volkswagen’s new stake in Guoxuan High-Tech would mark its first direct ownership of a Chinese battery maker, following its investment in Sweden’s Northvolt.

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Despite the negative outlook for the auto industry amid the Covid-19 crisis, automakers will continue to implement their long-term electrification strategies in 2020. Volkswagen is, alongside Tesla and GM, one of the few automakers already preparing the ground for mass-scale EV manufacturing. Investment by the German company in a rival automaker points to its intention to grow its EV presence inorganically in the highly competitive Chinese NEV market. Volkswagen’s 50% acquisition of Anhui Jianghuai Automobile Group Holding may also be able to respond to technological advantages beyond the inorganic growth focus. NIO’s EV models, the ES6 and ES8, are also manufactured at JAC’s Hefei plant. These two models are known to rival Tesla’s presence in the Chinese market due to their use of CATL’s advanced NCM 811 cathode cells – a high energy density, but thermally unstable, cathode chemistry, similar to Tesla’s NCA.

On the battery side, after Volkswagen secured battery supplies in Europe through its involvement with LG Chem, Northvolt, and CATL, the German company is now looking to secure battery supplies for its Chinese operations with SAIC, FAW, and now JAC. Guoxuan High-Tech is expected to partly supply the new venture with JAC, as both are based in Hefei. Also, the fact that Guoxuan High-Tech was operating around 10GWh of LFP battery manufacturing capacity in 2019, out of a total of 16GWh, suggests that Volkswagen may want to replicate Tesla’s cost-reduction strategy for the Chinese market through LFP cells, already priced by some suppliers under US$100/kWh.

Although Guoxan High-Tech is expected to go beyond 30GWh of manufacturing capacity in 2020, it will still struggle to supply Volkswagen’s 2025 goal of 150GWh battery demand in China. In this regard, CATL is expected to be one of the largest contributors to Volkswagen’s battery strategy. From its Liyang battery plant, CATL will supply battery cells to SAIC-Volkswagen’s MEB plant in Anting.

While Volkswagen’s stakes in Northvolt and, now, Guoxuan High Tech, suggest certain captive demand coming from these companies, Volkswagen’s presentation at AABC Europe in January 2020 suggested a different (or complimentary) approach. The new MEB platform will allow for a simpler modular battery pack in which, by adding more modules, the consumer will get more range (kWh capacity). However, “this simpler modular design will allow Volkswagen to use different cell sizes and formats from different cell suppliers so we don’t depend on one supplier”. This approach is expected to allow Volkswagen to push down further on battery cell prices, as its pack design won’t be captive of a specific cell design, allowing the German company to switch indistinctly among different suppliers.

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This article was written by Jose Lazuen and Kevin Shang. Please get in touch below if you wish to discuss further:

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