Batteries: Volkswagen board approves +US$1Bn plan for in-house battery cell manufacturing

Volkswagen electric vehicle

Volkswagen’s Supervisory Board has approved an investment of more than US$1Bn for in-house battery cell production under a partnership in Europe with Swedish company Northvolt. The plan envisages a cell manufacturing plant located in Lower Saxony.

Additional battery cell supplies will be needed as the German automaker plans to launch 70 new electric vehicle (EV) models over the next ten years. The projected number of vehicles on the Group’s e-platforms will be around 22 million units, implying a demand for batteries in Europe and Asia in excess of 300 GWh a year.

A 3-stage plan has been drafted by the German automaker: the first stage will involve cell supplies through strategic partnerships with established battery makers for the first wave of Volkswagen’s EVs. The second stage will involve Volkswagen building “Gigafactories” in Germany with partners “given the capital-intensive nature of the battery business”. In the third stage, Volkswagen will establish solid-state battery production in partnership with QuantumSpace, one of Volkswagen’s CVC (Corporate Venture Capital) investments into new battery technologies.

In the meantime, Volkswagen will be working “systematically” to reduce the share of cobalt in its batteries. The company envisions the share of cobalt to fall from 14% (weight proportion in the cathode) to 5% in the next three to five years. Volkswagen will also work to develop cobalt-free battery cells.

Roskill view:

Volkswagen’s approach to battery cell procurement will take the German company beyond the auto-making business, an area in which only Tesla and BYD have so far been successful. Nissan divested from its battery cell arm AESC in 2018, while Daimler’s battery cell subsidiary Li-Tec ceased production in 2015.

The Volkswagen Group is already experiencing cell shortages in its Audi brand. In April, Audi delayed the launch of its e-Tron as LG Chem cells suffered delays. Due to this and other cell shortages in the overall market, Manager-Magazin reported that Volkswagen was negotiating a partnership with SK Innovation to build a Gigafactory in Germany. As a result, LG Chem warned Volkswagen it would stop supplying battery cells if the auto-maker entered into a production agreement with SK Innovation.

In March 2019, Volkswagen formed a consortium with Northvolt called the “European Battery Union” (EBU). The consortium will start activities in 2020, and will focus on the entire battery value chain from raw materials to cell technology and recycling. The question now is when Volkswagen-Northvolt’s venture will start production as the Swedish company still has to deliver a 32GWh factory in Skellefteå.

Volkswagen’s strategy increasingly mirrors that of Tesla. Firstly, it ensures third party cell supplies, after which, it establishes a joint venture for cell production with a reputable cell-maker. Lastly, it will develop its own disruptive battery technology to increase energy density (Tesla through the Maxwell dry electrode method, and Volkswagen through the solid-state technology of QuantumSpace).

Nevertheless, when the latest +US$1Bn investment for in-house cell production is compared to the +US$50Bn in battery orders already committed with Asian battery makers, Volkswagen’s in-house cell approach instantly becomes a long-term strategy in which supply chain diversification becomes the main driver.

Volkswagen is so far the most advanced company in battery cell procurement strategy among long-established automakers. Will the German group, with its combustion heritage and liabilities, be able to replicate the success of newer companies like BYD and Tesla?

Roskill’s NEW Lithium-ion Batteries: Outlook to 2028 report was published in April and analyses the major raw material supply chains for this rapidly growing industry. Click here to download the brochure or to access further information.