Volkswagen Commits $25 Billion to Battery Supplies for EVs

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【Summary】According to Bloomberg Markets, the German automaker’s investment is expected to reach $60 billion, which is in line with its goal of manufacturing three million EVs per year by 2025.

Michael Cheng    Mar 23, 2018 1:18 PM PT
Volkswagen Commits $25 Billion to Battery Supplies for EVs

Automotive companies are aggressively preparing for the EV revolution, as manufacturers double down on raw materials, such as cobalt, lithium and copper, and secure contracts with suppliers. Such deals can decrease the risk of encountering bottlenecks during manufacturing.

Volkswagen is the latest car brand to make big moves in the sector, announcing a massive $25 billion commitment to battery supplies for EVs earlier this month. According to Bloomberg Markets, the German automaker's investment is expected to reach $60 billion, which is in line with its goal of manufacturing three million EVs per year by 2025.

The Road to EV Domination

The automotive giant appears to have a clear-cut strategy for EV domination. Reports indicate that Volkswagen has secured deals with leading battery suppliers in Europe and China. Such companies include Samsung SDI, LG Chem Ltd. and Contemporary Amperex Technology Ltd. Volkswagen plans to acquire contracts with battery suppliers in North America as well.

The supplies will be distributed to 16 EV manufacturing plants by 2022. By working with battery suppliers conveniently located around its production sites, the business can decrease supply chain costs. Chinese battery producer CATL, one of Volkswagen's battery suppliers, intends to setup manufacturing facilities in Europe to cater to the auto manufacturer's local production plants.

"Volkswagen's battery plans compare to Tesla's $17.5 billion worth of purchase obligations as of last year, including $15.4 billion in deals through 2022, primarily related to buying lithium-ion cells from Panasonic, according to a recent filing. Volkswagen called its battery tender one of the biggest purchasing initiatives in the auto industry," said Chris Reiter and Christoph Rauwald from Bloomberg Markets.

In the field of autonomous driving, the company has invested a total of $42 billion. The scope of the pledge, which was announced in November 2017 and approved by Volkswagen's supervisory board, includes mobility related services.

New Challenges Ahead

Starting next year, the car manufacturer will release a new EV "virtually every month," according to the company's chief executive Matthias Müller. For 2018, the group will roll out three new EV models.

"This is how we intend to offer the largest fleet of electric vehicles in the world," said Müller. "Naturally, we are looking to continue our operating business success in 2018. Not least because we must generate the revenue we will need for our enormous future investments."

After forking out billions for its controversial dieselgate scandal, the business has been busy revaluating its spending practices. According to Evercore ISI analyst Arndt Ellinghorst, Volkswagen has decreased its capex and (cash) spending on research and development projects for this year.

Furthermore, the automaker plans to reduce money spent on equipment and factories, which is forecasted to make up roughly six percent of auto sales by 2020. Last year, that figure was close 6.9 percent.

Lastly, like Apple, the company is looking to boost its long-term cobalt supplies. Volkswagen is also aiming to reduce its reliance on the metal, by funding research projects related to battery efficiency. At the moment, the world's largest cobalt miners include the following establishments: Glencore Plc, Eurasian Natural Resources Corp. and China Molybdenum Co.

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