Volkswagen to invest in mines to bring down battery cell costs

Berlin — Volkswagen plans to invest in mines to bring down the cost of battery cells, meet half of its own demand and sell to third-party customers, the carmaker’s board member in charge of technology said.

Europe’s biggest carmaker wants its battery unit PowerCo to become a global battery supplier, not just produce for Volkswagen’s own needs, Thomas Schmall told Reuters in an interview.

PowerCo will start by delivering cells to Ford for the 1.2-million vehicles the US carmaker is building in Europe on Volkswagen’s electric MEB platform, he said.

Long-term, Volkswagen plans to build enough cells to meet half its global battery needs, with most production capacity located in Europe and North America, according to Schmall.

“The bottleneck for raw materials is mining capacity — that’s why we need to invest in mines directly,” he said.

The carmaker was partnering on supply deals with mining companies in Canada, where it will build its first North American battery plant.

Schmall declined to comment on further locations under consideration or where or when Volkswagen might invest directly in mines, saying the company would not disclose that information until the market was more settled.

“In future, there will be a select number of battery standards. Through our large volume and third-party sales business, we want to be one of those standards,” he said.

Ambitious road map 

Making or sourcing batteries at a reasonable cost is a key challenge for carmakers like Volkswagen, Tesla and Stellantis as they seek to make electric vehicles (EVs) affordable.

Only Tesla has pledged more investment into battery production than Volkswagen, according to a Reuters analysis — though even the US EV maker is struggling to ramp up production and is recruiting Asian suppliers to help.

Few carmakers have disclosed direct stakes in mines, but many have struck deals with producers to source materials such as lithium, nickel and cobalt and pass them onto their battery suppliers.

PowerCo, set up last year, is targeting €20bn (R390bn) in annual sales by 2030.

It’s an ambitious road map for a unit not yet producing at scale. Production will start in 2025 at PowerCo’s plant in Salzgitter, Germany, 2026 in Valencia, Spain and 2027 in Ontario, Canada.

Still, Schmall is confident the carmaker can expand quickly — and must do so if it wants to build an affordable EV, in which 40% of the costs come from the battery.

Volkswagen released on Thursday the details of a 25,000-euro EV it aims to sell in Europe from 2025.

China's BYD, which also produces batteries, is far ahead of Volkswagen in the affordable EV race and outsold the German carmaker for the second time in four months in China in February.

Reducing costs 

In Volkswagen’s €180bn (R3.5-trillion) five-year spending plan, up to €15bn (R292.5bn) is earmarked for its three announced battery plants and some raw material sourcing.

The carmaker has so far nailed down raw material supply until 2026 — by which time the German and Spanish plants will be in operation — and will decide in the next few months how to meet its demand from then on, Schmall said in the interview.

It has also ordered some $14bn (R256.5bn) in batteries from Northvolt’s Swedish plant.

“Bringing down battery costs further is a challenge,” Schmall said. “We’re using all the instruments with PowerCo.”

Asian producers including CATL, LG Chem and Samsung dominate global cell production, with almost half of planned battery cell capacity in Europe by Asian players.

Half the staff at Volkswagen’s PowerCo are industry veterans from Asia, Schmall said, enabling the battery unit to enter the industry at the top of the learning curve.

Reuters