It’s one of the hottest debates in the EV enthusiast community these days: what’s the best battery approach for automakers — vertical integration or simply buying batteries from top battery producers? Either approach could end up with lower costs and more advanced battery tech, depending on how the future rolls out*.
Well, Volkswagen is stepping the debate up to yet another level. The German giant is calling for a “European-wide bundling of forces for the production of battery cells for electric cars,” as Google Translate tells me Handelsblatt reports it**. In other words, the battery market is a huge emerging market with hyper-competitive cell producers in South Korea and Japan, but European automakers and related industrial leaders could potentially compete if they pooled their resources and worked together***.
This would provide a kind of combined/cooperative vertical integration, and would put the destinies of these leading automakers more in their own hands while also tying those destinies together more.
When it comes down to it, the proposal seems to largely be about the economic potential of leading on batteries. “There will be hardly any fields where one can grow faster if one is competent to build industrial plants,” says Herbert Diess, member of the management board of Volkswagen AG as well as Chairman of the management board and CEO of the Volkswagen Passenger Car Brand. “From my point of view, it would be desirable for German and European industry to be more involved at the moment.”
However, this is more of a long game. For the time being, and the big electric car push Volkswagen Group has planned through 2025, it appears that the company is happy to stick by and survive thanks to its battery suppliers in Korea. “He said that for the first phase in which electric mobility would be driven, VW would be sufficiently supplied with battery cells thanks to long-term contracts from its suppliers from South Korea.”
Daimler seems to have more hesitation on this idea of producing battery cells in Europe. It used to produce battery cells but stopped doing so two years ago. It couldn’t compete with the Asian producers, according to Handelsblatt. However, new battery breakthroughs are continuously on the table and in discussions about the future of the electric car industry. Daimler execs are apparently keeping their mind open to one day leading the world in battery cell tech. “If a breakthrough succeeds in our house or somewhere else … it may be that there is a new game where we have chances to build a competitive position,” said Daimler CEO Dieter Zetsche (pictured on the right next to a concept Mercedes EQ fully electric SUV).
One of the most well known and accomplished names in the automotive supplier world is Bosch, which has been leading on some autonomous driving tech but also puts together the battery packs for Fiat and Porsche electric cars (using Samsung SDI battery cells). “The world’s largest car supplier Bosch wants to decide by the beginning of next year whether it will dare a billion-dollar investment in cell production,” the Google translation from Handelsblatt states.
As I reported last month from an exclusive conversation, Volkswagen Group’s board has apparently remained engaged about the best way to proceed on the EV battery front — via in-house production or procurement from global battery leaders. This newer report out of Germany indicates that the company is still exploring its options but the Volkswagen Group CEO, Matthias Müller, has a strong preference to bring such production in-house.
“Volkswagen will test the production of battery cells and modules at the Salzgitter engine plant next year — initially in small quantities under laboratory conditions, later on in a pilot plant. This is how the Lower Saxony group will gather experience in order to decide later whether they are entering into the production of large quantities. Group CEO Matthias Müller wants to make battery technology a core competence of VW.”
We’ll see if Müller ends up winning the support of his colleagues, and whether Volkswagen’s foray into battery cell production bears fruit or ends up wasting the company’s resources/money. Either way, it seems clear that Volkswagen Group will be ramping up electric car production with an aim to be the world’s #1 electric car manufacturer.
*Note: This is actually one reason I’d advise being cautious on a bullish Tesla [TSLA] stance. I do think Tesla’s approach is more effective so far and will be for a while, but you never really know if Samsung SDI, LG Chem, SK Innovation, or another battery producer won’t land on a massive breakthrough, which would benefit the automakers in the best position to take advantage of that and line up huge orders for compelling new EVs — could be Tesla, but could be another company. Tesla’s vertical integration could hinder quick adoption of such a battery … or not. Of course, if Tesla is the company that develops the breakthrough, then it’s essentially checkmate.
**h/t Jenny Sommer
*** BMW has relied on battery cells from Samsung SDI, Volkswagen Group (especially Volkswagen and Audi) has largely bought battery cells from LG Chem, and Mercedes-Benz has largely relied on cells from Samsung SDI.
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