The Volkswagen group is about to transition its electric car production from just a few thousand cars per year to millions of units per year and that’s going to take an incredible amount of battery cells.
Despite some concerns, VW now says that its battery contracts are secured ‘for the first few years’ of the production ramp up.
Back in 2016, VW launched a new commitment to electric vehicles as they slowly started to distance themselves from diesel following the Dieselgate scandal.
With a goal to make 3 million electric vehicles per year between all their brands (VW, Audi, Porsche, etc.) by 2025, they considered making their battery cells to support the extremely high production rate, but they ended up abandoning those plans.
Instead, they issued battery supply contracts worth $48 billion with existing battery manufacturers. The contracts are estimated to be for about 300 GWh of battery cells.
VW split those billions worth of contracts between several companies: Samsung SDI, LG Chem , SK Innovation, and CATL.
But last year, VW CEO Herbert Diess said that he doesn’t want to become dependent on those manufacturers:
“We must not make ourselves dependent on a few Asian manufacturers in the long term,”
At the time, they were considering building their own battery factories and they have since moved forward through a partnership with NorthVolt to build their own battery cells.
But it will take a while for the production to start and they have to work with suppliers in the meantime.
This has reportedly angered some suppliers and LG reportedly threaten to cut VW’s battery cell supply if they went forward with their own battery factory.
Samsung SDI has also reportedly cut the capacity that it can deliver to the VW group.
Now Thomas Ulbrich, VW board member in charge of electric vehicles, says that the concerns are overblown and that the contracts are secured for the first few years of VW’s EV push (via Autonews Europe):
“I can confirm that for the first years of our plan, a sufficient supply of cells has been contractually secured. They probably hoped to maintain an oligopoly for a very long time. We have the contracts so no one is going to stand there and tell us ‘we are not going to supply you any more, help yourselves if you want to build them anyway,’ — that’s not possible.”
He specifically mentioned 2023 and added that they will have to keep doing battery cell supply negotiation going forward:
“Our procurement needs continue after that (first wave) however. You will likely see us permanently in negotiations for cells for the next three to five years.”
VW’s battery supply from Northolt in Europe is not expected to start until 2021 and as for its own factory in partnership with Northvolt, that’s not expected to have an impact until 2023-2024.
Battery cell supply is where it starts for automakers serious about volume production of electric cars.
The incredible growth rate is making it a complicated industry.
It’s going to be extremely competitive over the next few years as I believe more automakers are going to want to also throw their hats into the ring and challenge the big players from Asia.
Battery cells are too much of a key component of EVs for them not to get involved.
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