Batteries used for electric vehicle conversion sit inside a vintage Volkswagen Beetle vehicle in Yokohama, Japan. Picture: KIYOSHI OTA/BLOOMBERG
Batteries used for electric vehicle conversion sit inside a vintage Volkswagen Beetle vehicle in Yokohama, Japan. Picture: KIYOSHI OTA/BLOOMBERG

Frankfurt/Beijing — Global vehicle makers are planning a $300bn surge in spending on electric vehicle technology over the next five to 10 years, with nearly half of the money targeted at China, accelerating the industry’s transition from fossil fuels and shifting power to Asian battery and electric vehicle technology suppliers.

The unprecedented level of spending — much of it by Germany’s Volkswagen — is driven in large measure by government policies adopted to cut carbon dioxide emissions and will extend technological advances that have improved battery cost, range and charging time to make electric vehicles more appealing to consumers, according to an exclusive Reuters analysis of public data released by those companies.

China has for decades played catch-up to German, Japanese and American vehicle makers, which dominated internal combustion vehicle technology. Now, China is positioned to lead development, industry executives say.

“The future of Volkswagen will be decided in the Chinese market,” said Herbert Diess,  CEO of VW, which has decades-old joint ventures with two of China’s largest vehicle makers, SAIC Motor and FAW Car.

Speaking to a small group of reporters in Beijing, Diess said China will become one of the automotive powerhouses in the world. “What we find is really the right environment to develop the next generation of cars and we find the right skills, which we only partially have in Europe or other places,” he said.

“We have very clear policies established here in China," he said, adding that policymakers and regulators require a shift to electric vehicles.

As China and other countries place more restrictions on conventional petrol and diesel engines, companies have accelerated the shift to electrification. A year ago global vehicle makers said they planned to spend $90bn on electric vehicle development.

The $300bn that vehicle makers have earmarked to put electric vehicles into mass production in China, Europe and North America is greater than the economies of Egypt or Chile.

Almost one-third of the industry’s electric vehicle spending — about $91bn — is being committed by the Volkswagen Group, which is aggressively trying to distance itself from the dieselgate scandal, which has cost it billions in penalties and legal settlements.

VW’s sweeping electrification plan envisions capacity on three continents to build up to 15-million electric vehicles by 2025, including 50 pure electric and 30 hybrid electric models. Eventually, VW plans to offer electrified versions of all 300 models in its 12-brand global portfolio, which includes Audi and Porsche.

VW’s staggering electric vehicle budget dwarfs that of its closest competitor, Daimler, which has committed $42bn. In comparison, General Motors (GM), the leading US vehicle maker, has said it plans to spend a combined $8bn on electric and self-driving vehicles.

Roughly 45%  of the global industry’s planned investment and procurement spending, more than $135bn,will occur in China, which is heavily promoting the production and sale of electric vehicles through a system of government-mandated quotas, credits and incentives.

As a result, spending by major Chinese manufacturers from SAIC to Great Wall Motor could be matched or even exceeded by multinational joint venture partners such VW, Daimler and GM, as they dramatically expand their electric vehicle portfolios in China and ramp up battery purchases from Chinese suppliers.

Reuters analysed investment and procurement budgets made public over the past two years by 29 of the world’s top vehicle makers, based primarily in the US,  China, Japan, South Korea, India, Germany and France. The figures do not reflect planned investments and purchases that have not yet been made public.

Actual spending by vehicle manufacturers on research & development, engineering, production tooling and procurement is likely to be much higher. The analysis does not include related spending by automotive suppliers, technology companies and large corporations in other industries, from energy and aerospace to electronics and telecommunications.

“There has been a rush” to invest in electric vehicles and batteries, said Alexandre Marian, AlixPartners MD and co-author of a 2018 study that forecast total electric vehicle spending of $255bn to 2023 by global vehicle makers and suppliers.

Marian said the industry has increased spending budgets on electric vehicles and batteries, while seeking more alliances and partnerships to help spread the higher investment costs.

Alliances, such as those between VW and its Chinese partners, will be among the greatest spurs to innovation, especially in the global roll-out of electric vehicles.

Diess said VW is “evolving from the model where we have been developing and bringing European technology into this market to a new phase where we will co-develop part of the automotive technology in China for the rest of the world. I think this is a significant step change.”