Picture: ISTOCK
Picture: ISTOCK

Volkswagen (VW) secured €20bn in battery supplies to underpin an aggressive push into electric cars in the coming years, putting pressure on Tesla as it struggles with production issues for the Model 3.

The car maker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three now, VW said on Tuesday.

The German manufacturer’s plans to produce as many as 3-million electric cars a year by 2025 is supported by deals with suppliers including Samsung SDI, LG Chem and Contemporary Amperex Technology for batteries in Europe and China.

With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, VW said. In total, the company has said it plans to purchase about €50bn in batteries as part of its electric-car push, which includes three new models in 2018 and dozens more to follow.

From 2019, the 12-brand group will roll out a new battery-powered model "virtually every month", CEO Matthias Mueller said at the company’s annual media conference.

From 2019, the   group will roll out a new battery-powered model ‘virtually every month’

VW’s share price was up 0.4% to €159.14 at 12.50pm in Frankfurt, narrowing the stock’s drop in 2018 to 4.4%.

Pressure has intensified on VW to overhaul its line-up. The diesel-cheating scandal, which erupted in September 2015, sparked a backlash over the technology, including potential urban driving bans.

Diesel is key to efforts to meet tighter environmental targets because of its fuel efficiency, even though it emits smog-causing nitrogen oxides. VW reaffirmed its backing for the technology, with Mueller calling it "part of the solution," even as Toyota Motor pulls diesel cars from its line-up in Europe, the main market for the vehicles.

As part of VW’s €20bn push into electric cars, it is setting up a standalone subbrand for battery-powered vehicles. The first model with the ID nameplate will be the Neo hatchback, which goes on sale in 2020. The Audi luxury marque is set to begin deliveries later in 2018 of the all-electric E-Tron SUV.

Even with the battery supply deals, one of the largest purchasing tenders in the automotive industry, VW’s power supply issues are still far from over. The company, which has struggled to secure sources of cobalt, a component for modern batteries, said that it is working on ways to reduce the amount of the element needed for its cars.

Producing the powerpacks itself is not on the cards. "This is not one of our core competencies," said Mueller, who faces pressure from employee representatives to invest in battery-cell production. Chinese manufacturer CATL, which Mueller confirmed as one of VW’s future battery providers, is considering a site in Europe for its first overseas plant, chairman Zeng Yuqun said a week ago.

Even with its push to ramp up electric car production and avoid penalties from tighter environmental regulations, VW plans to rein in expenditure.

Development spending declined 3.9% to €13.1bn in 2017, equivalent to 6.7% of sales. The company reiterated a target to lower that ratio to 6% by 2020.

Managing the technology shift requires an intense focus on maintaining profitability from VW’s current line-up.

The German manufacturer predicts an operating margin this year of 6.5%-7.5% of revenue, compared with 7.4% in 2017.