Volkswagen’s Strategy for Battery Cell Production

Volkswagen plans to invest in mines to reduce battery cell costs, meet half of its own demand, and sell to third-party customers, according to the carmaker’s board member in charge of technology. This move is in line with the broader trend of automakers seeking greater control over parts of the supply chain, from energy generation to raw material sourcing, as they compete for scarce resources needed to meet electrification targets.

PowerCo: Aiming to Become a Global Battery Supplier

Volkswagen’s battery unit, PowerCo, aims to become a global battery supplier and meet half of the automaker’s demand with plants primarily in Europe and North America. PowerCo will begin by supplying cells to Ford for the 1.2 million vehicles the U.S. carmaker is building in Europe on Volkswagen’s electric MEB platform. To address the bottleneck in raw materials, Volkswagen plans to invest directly in mines, with partnerships underway in Canada for its first North American battery plant.

Ambitious Roadmap for Battery Production and Sales

PowerCo, established last year, targets over €20 billion in annual sales by 2030. The unit faces an ambitious roadmap, with production starting in 2025 at its Salzgitter, Germany plant, 2026 in Valencia, Spain, and 2027 in Ontario, Canada. Volkswagen remains confident in its ability to expand quickly, recognizing the importance of reducing battery costs to produce affordable electric vehicles (EVs).

Competing with Tesla and BYD in the EV Market

Acquiring batteries at a reasonable cost is a challenge for carmakers like Volkswagen, Tesla, and Stellantis, as they strive to make EVs more affordable. Only Tesla has committed more investment into battery production than Volkswagen, although the U.S. EV maker is also struggling to increase production and is seeking help from Asian suppliers. Volkswagen faces stiff competition from China’s BYD, which leads the affordable EV race and has outsold the German automaker twice in four months in China.

Reducing Costs and Securing Raw Material Supply

Of Volkswagen’s €180 billion five-year spending plan, up to €15 billion is designated for its three announced battery plants and some raw material sourcing. The automaker has secured raw material supply until 2026 and will decide in the next few months how to meet its demand thereafter. Volkswagen has also ordered $14 billion in batteries from Northvolt’s Swedish plant. Reducing battery costs remains a challenge, and Volkswagen aims to use all available instruments with PowerCo to address this issue.