VW in bid to become global battery supplier

In spite of a robust collection of new hybrid and electric vehicle models coming out, Volkswagen's hottest project may not be a car. With batteries being the most expensive component in an EV, at roughly 40% of the overall cost, Europe's largest automaker is going straight to the source by investing in Canadian mines.

For now, plans for what potential sites are being investigated and what investments are being made have not yet been disclosed.

Partnerships between vehicle manufacturers and mining concerns can cut years off development times. Securing resources quickly and close to refineries is key to winning the electrification race and represents a growing trend of EV manufacturers establishing greater control over their own supply chains.

This strategy, called vertical integration, allows companies to streamline operations by taking direct ownership of more stages of the production process, relying on fewer contractors. More carmakers are acquiring direct stakes in mines or, at the very least, striking deals for lithium, nickel, and cobalt for their battery suppliers.

Enter Thomas Schmall, VW's board member in charge of technology and chairman of in-house battery manufacturer PowerCo.

"The bottleneck for raw materials is mining capacity – that's why we need to invest in mines directly," Schmall said in a recent interview with Reuters.

This business model is designed by VW to raise standards and strategically consolidate activities along the battery value chain. The scope includes further development of unified cell technology, recycling of end-of-life batteries, and managing the group's growing family of gigafactories.

In 2022, already on the fast track to becoming the world's leading manufacturer of EVs, VW set up PowerCo and built an exemplary first gigafactory in Salzgitter, Germany. High benchmarks were set in terms of sustainability and innovation, from equipment and infrastructure to products, processes, and IT. PowerCo is set to manage international factory operations as well as machinery and equipment supply. Future projects will also include major storage systems for the energy grid.

"In building our first in-house cell factory, we are consistently implementing our technology roadmap. PowerCo will become a global battery player. The company's major strength will be vertical integration from raw materials and the cell through to recycling," said Schmall. "In future, we will handle all the relevant activities in-house and will gain a strategic competitive advantage in the race to take the lead in e-mobility. We have secured a top team for this great undertaking."

PowerCo is breaking ground on a second gigafactory this month in Valencia, Spain, with three more carbon-neutral cell facilities in Europe planned. The Valencia factory will be powered by a new 250-hectare solar farm nearby and regional wind energy. The raw material cycle will also be directly on-site, minimizing environmental impact.

The third plant will be located in St. Thomas, Ontario, VW's first in North America. The location's appeal is its ready access to abundant raw materials and clean energy. VW originally signed an agreement with Canada last year to acquire cathode materials while working toward qualifying for the federal tax credit offered to EV buyers.

You can read about the recent St. Thomas plant announcement at Ontario new home to VW gigafactory in this week's edition of Metal Tech News.

Production is expected to start in 2025 in Salzgitter, 2026 in Valencia, and 2027 in Ontario, collectively meeting half the carmaker's own demand as well as supplying automakers like Ford. VW also ordered about $14 billion in batteries from Northvolt's plant in Sweden – in which VW owns 20% shares – to partly cover the remaining need while final supply requirements are being decided.

"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," Schmall said.

PowerCo anticipates more than $20 billion in annual sales by the end of the decade.