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Volkswagen plans to reduce battery costs and make electric cars more affordable

Published: 10:51 16 Mar 2021 GMT

Volkswagen Group -

Volkswagen Group (XETRA:VOW) shares have hit a six-year high as the world’s second-largest carmaker detailed how it plans to boost production of battery cells in Europe to handle growing demand for electric vehicles.

The carmaker, which owns the Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Ducati and Scania motor brands, said it plans to significantly reduce the complexity and cost of the battery to make the electric car attractive and viable for as many people as possible.

At the same time, the group is aiming to secure the supply of battery cells beyond 2025 by building six gigafactories in Europe by the end of the decade, adding a total production capacity of 240 GWh.

“Together with partners, we want to have a total of six cell factories up and running in Europe by 2030 thus guaranteeing security of supply,” said Thomas Schmall, head of Volkswagen Group components at the company's first 'power day' on Monday and Tuesday. 

READ: VW is top candidate for Apple Car parnership, says broker

The first two factories will operate in the Swedish city of Skellefteå and in Salzgitter. In response to increased demand, Volkswagen will now concentrate production of its premium battery cells in the Swedish gigafactory “Northvolt Ett” in Skellefteå in collaboration with Northvolt. For the four additional gigafactories, the partners are yet to be decided.

VW is looking at integrating battery production all the way through to industrial recycling alongside selected strategic partners. Collaboration with suppliers will be intensified to recycle up to 95% of raw materials.

Analysts said this means that Volkswagen is exploring potential investments in, or acquisitions of, supply chain players.

Driving down EV costs

The German carmaker also said it is seeking to gradually reduce battery costs in the entry-level segment by up to 50% and in the volume segment by up to 30%.

“On average, we will drive down the cost of battery systems to significantly below 100 euros per kilowatt hour. This will finally make e-mobility affordable and the dominant drive technology,” said Schmall.

From the middle of the decade onwards, the car will be “designed around the cell” to drive the best economies of scale, with a new 'unified prismatic' battery cell to begin design work in 2023 with the aim of covering 80% of group-wide volumes by 2030.

In addition, VW and its partners intend to operate about 18,000 public fast-charging points in Europe by 2025, meeting about a third of the anticipated demand.

As well as Northvolt, another of VW's battery partners is US-based QuantumScape (NYSE:QS), which last month made a potentially crucial breakthrough in taking its superfast-charging solid-state battery technology from the lab towards mass production. 

Up 9% since the start of the week, VW shares topped €210 on Tuesday for the first time since the summer of 2015.

The 'power day' from VW was "very solid", said JPMorgan in a note on Tuesday, suggesting it "has provided incremental confidence to investors that the firm is carrying out a gradual transition from ICE into EVs across the entire supply chain".

At UBS, which recently predicted that VW and Tesla will be the global leaders in EV sales, analysts estimated the German manufacturer will have to invest around €15bn over the next five years, assuming a 50% stake in the gigafactories.

“In a world of tighter-for-longer battery supply, we think VW is taking the right choice to secure cells for its aggressive EV rollout and reach a stronger negotiating position.

“There are still questions about raw materials sourcing, potential partners and the cell sourcing outside Europe, which we expect to get more visibility on tomorrow.

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