Recently, Volkswagen Group's new CEO Oliver Blume suggested the company's electric vehicle partnership with Ford is "intensifying." This is interesting since Ford has said it doesn't intend to rely on VW over the long term. Now the largest automaker in Europe has plans to become a global EV battery supplier, selling cells to Ford and others.
Batteries are the most expensive part of an EV. We've been told for years the cost of battery cells and EV battery packs would come down. While they have, there's also a growing demand for them, which can push costs in the opposite direction.
As more carmakers switch to EVs, economies of scale should help reduce battery costs. More companies will be mining and refining materials, batteries will become more plentiful, and costs should begin to drop more notably. However, in the meantime, automakers that are serious about the future of electric cars would be wise to make more immediate plans.
According to recent reports, Volkswagen's PowerCo battery unit is planning to grow exponentially and supply EV batteries across the globe in the future. The goal is for PowerCo to satisfy half of VW's battery needs while selling the rest to competing global brands, including Ford. PowerCo aims to supply Ford with enough batteries to produce 1.2 million MEB-platform EVs.
Clearly, executives at Volkswagen Group believe the company can make money with the proposed venture, though the reach of the benefit will come down to how much it can reduce battery costs. If VW Group can reduce costs significantly, undercut rivals, and sell its product for a healthy profit, it could then funnel the money back into its own EVs.
In order for battery costs to come down significantly, there needs to be more mining and refining. Tesla CEO Elon Musk has been making this point clear for a time, and now Tesla is getting into mining. Meanwhile, and to no surprise, Volkswagen will reportedly go in this direction as well.
Based on a recent report by Reuters, VW Group aims to greatly increase EV volume and, in turn, reduce costs. This includes gathering the raw materials it needs for electric car batteries, some of which it plans to get as part of an agreement with Canada, which will ensure its EVs qualify for the newly revamped U.S. federal EV tax credit.
"That volume will help us to bring prices down to be competitive and also still make money," said Thomas Shafer, CEO of Volkswagen Passenger Cars, via Electrek.
VW more recently announced the agreement in Canada is official. It will move forward with building an EV battery manufacturing facility in St. Thomas, Ontario. The area is home to many of the needed raw materials, it's highly dependent on renewable energy, and it offers the European automaker the option to invest in nearby mining operations.
Thomas Schmall, a VW Group board member responsible for technology, admitted the bottleneck for EVs is a lack of raw materials, and the solution is an increase in mining. He added this is why the automaker plans to make direct investments in mining.
