Volkswagen Board releases €1Bn for battery cell factory

Volkswagen’s supervisory board has announced the automaker’s entry into battery cell production and is ready to invest one billion euros. Depending on the political circumstance, VW wants to set-up production in Germany at its Salzgitter site in Lower Saxony.

The decision to build battery cells for the Volkswagen in Europe is not entirely unexpected as the Group had recently bundled all battery competencies including recycling and R&D in the new Component unit in Salzgitter, a town in Lower Saxony. Still, tonight’s announcement must be considered an “important milestone,” Volkswagen CEO Herbert Diess commented after the Board met on the eve of the general meeting.

It is also further confirmation of Volkswagen’s electrification strategy for which the sum of 30 billion euros has been around since November. From the start, battery cell production in Europe was to be a part of it; however, current suppliers such as LG Chem or CATL soon torpedoed these plans.

Yet competition aside, the Board confirmed the desired location for the battery cell facility to be Salzgitter and also that the Group is to “move forward with setting up a battery cell production facility in Europe under a partnership,” with SK Innovation having previously been rumoured as potential partner. Supervisory Board Chairman Hans Dieter Pötsch added that at the same time, “we wish to expand our production capacities in Europe to support our growth plans” overall.

Whether Salzgitter will get the facility depends on whether “the general economic conditions exist,” which include “competitive fiscal framework conditions and attractive energy prices,” reads the paper on VW’s battery strategy. The speed of approval processes is mentioned as well with VW reckoning that “establishing a cell factory takes at least three years”. A final decision on the plans and the actual sum of investment is expected to be taken by the end of the year. However, the Minister President of Lower Saxony, Stephan Weil, already commented that “today’s decision by the Supervisory Board marks a breakthrough for battery cell production in Lower Saxony,” before adding that he is “very optimistic that battery cells can be produced in Germany at competitive conditions”.

Overall, Volkswagen will advance its electrification offensive in stages with the first wave building on strategic partnerships with the current cell suppliers such as SKI, LG Chem and CATL. Meanwhile, the Center of Excellence (CoE) in Salzgitter is to establish expertise and start pilot production from the second half of 2019 on.

Only in the last step will Volkswagen establish what it (also) calls gigafactories and also focus on potential locations in Germany. Subsequently, the Group plans to set-up cell production facilities for lithium-ion batteries and solid-state batteries – both in Europe. For solid-state batteries, the Group considers the partnership with QuantumScape as “integral,” according to the battery strategy paper.

Talking about stages, Volkswagen’s Chief Purchasing Officer Stefan Sommer said VW “are aiming for a capacity of more than ten-gigawatt hours”.

In terms of other known partners, Volkswagen is part of the European Battery Union (EBU) together with Sweden’s battery manufacturer Northvolt. The joint research on the battery’s entire value chain – from raw materials to cell technology to recycling – will kick-off in early 2020.

The last word on raw material supply which Volkswagen considers a “key success factor,” naturally but is “confident that it will have sufficient quantities of all the raw materials required to ensure ramp-up of the e-fleet”. The Group mentions the recently signed an MoU with Ganfeng on a 10-year basis, saying that this agreement alone will “secure a major part of our lithium needs”. Ganfeng holds similar contracts with BMW, Tesla and LG Chem. Further negotiations with other providers are ongoing though, says Volkswagen and these will indeed be essential for any battery cell production in Europe going ahead.

volkswagen-newsroom.com (PI), volkswagen-newsroom.com (strategy paper), automobilwoche.de (10 GW, in German)