Weekly Brief: Volkswagen’s Battery Strategy to EV Supremacy

Commentary By Andrew Tolve

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11th July 2022

To vie for electric vehicle supremacy, carmakers need battery power.

The more high-quality batteries they can make for the least amount of money at the greatest rate of efficiency, the better suited they will be to outpace rivals in local and global EV markets. To that end, Volkswagen launched a new battery company last week called PowerCo that will be responsible for all of Volkswagen Group’s global battery activities moving forward. In addition to cell production, the new company will be responsible for activities along the entire battery value chain, from research and development to major storage systems for the energy grid. Between now and 2030, PowerCo plans to invest more than €20Bn ($20.6Bn) together with partners with the goal of generating annual sales in excess of €20Bn. PowerCo intends to employ up to 20,000 people in Europe alone, with an additional workforce in North America and possibly Asia.

VW’s CEO Herbert Diess announced PowerCo at the groundbreaking of the group’s first cell factory in Salzgitter, Germany. If all goes according to plan, the factory will begin cell production in 2025 and by 2030 will be cranking out enough production capacity to power 500,000 EVs each year. Diess said that the Salzgitter cell factory will serve as a blueprint and starting point for the Group’s global battery offensive – with six cell factories in Europe and the prospect of further factories in North America. Each factory will operate 100% on electricity from regenerative sources and will be designed for future closed-loop recycling.

“Today we are not only laying a foundation stone but also marking a strategic milestone,” said Diess. “The battery cell business is one of the cornerstones of our new auto strategy which will make Volkswagen a leading provider of the sustainable, software-driven mobility of tomorrow.”

Diess hasn’t held back when it comes to stating his ambitions for EVs. At the World Economic Forum this year he said he wanted the VW Group to surpass Tesla as the biggest seller of EVs in the world by 2025. Achieving that title will be an uphill climb, however. The group has struggled mightily with semiconductor shortages and other supply chain constraints, hampering its ability to keep pace with Tesla, let alone close the gap. If you combine all the brands under the VW Group umbrella (Volkswagen, Audi, Porsche, Skoda and SEAT), Tesla still outsold them in both the first and second quarter of 2022 by more than 200,000 units each quarter.

Last week VW reported that it sold a measly 1,660 units of its flagship EV, the ID.4 electric SUVs, in the US in Q2 2022. That represented a 71% drop from Q2 2021. Will operating its own cell factories help shore up its supply chain woes? Most likely. Will it help enough to vault VW past Tesla by 2025? I don’t think so.

Then again, things aren’t going all that smoothly for Tesla these days either. The EV maker is under investigation by The US National Highway Traffic Safety Administration for a string of fatal accidents involving Autopilot. The investigation is likely to lead to a nationwide recall. Last week German regulators ordered Tesla to recall nearly 60,000 vehicles in Germany over a software glitch with the eCall emergency service. Paul Myles has the details.

Elon Musk meanwhile is embroiled in a number of personal controversies, the latest of which is the bombshell that he allegedly fathered twins back in April 2022 with one of his executives, Shivon Zilis, and then petitioned a judge to change the twins’ last name to keep the story hidden from his wife with whom Musk recently fathered a second child through surrogacy. Musk declined to comment but the rumors keep on growing. Musk also made headlines last week by announcing that he no longer wants to buy Twitter for $44Bn, even though he signed a legally binding contract to purchase the social media giant back in April. A court battle is bound to ensue.

No matter the outcome with the children, the sexual abuse allegations, the possible recalls, and the social media gambits, all of these represent serious distractions from the core business of running Tesla. This may represent Diess’s best shot.