WOLFSBURG ABUZZ

In Search of New Energy at Volkswagen

VW-DPA-UliDeck
Could VW's e-up get its own battery plant?
  • Why it matters

    Why it matters

    VW’s push into producing electric cars could weigh on earnings in the short to medium term, but be a boost in the long run to compete against Toyota, Tesla Motors and others.

  • Facts

    Facts

    • CEO Matthias Müller plans to present “Strategy 2025” to the public in mid-June.
    • In the future, the VW Group would produce electric cars while the high-end subsidiary Audi would be charged with developing fuel cells.
    • The huge Tesla Gigafactory 1 in Nevada is planned to supply lithium-ion batteries for a half-million e-cars annually.
  • Audio

    Audio

  • Pdf

As Volkswagen tries to emerge from its Dieselgate scandal, CEO Matthias Müller has big plans for rebuilding the automaker’s business and reputation.

Mr. Müller recently called for a new way of thinking, bold action and more team spirit. “Volkswagen needs all of that to also be successful in the future,” he told his executive team.

Where VW goes after the disastrous emissions affair, revealed last September and affecting 11 million diesel cars globally, is being intensely discussed within the Wolfsburg-based company. Plans are slated to be presented to the supervisory board next month. In mid-June Mr. Müller then plans to go public with the main features of “Strategy 2025.”

A battery factory would cover Volkswagen’s own needs and put the company on the cutting edge of this new technology.

One thing is already clear: It is supposed to be a real new beginning, to repair damage to Volkswagen’s image caused by falsified emissions data. “We want a major step forward that can put us at the top of the industry,” said one of those involved.

The main focus will be mobility services and above all new drive systems. The electric car, a wallflower up to now at VW, is supposed to be made viable for the masses. And fuel cells, which are favored by archrival Toyota, are also planned to be brought into mass production.

How to divide the work is dominating debate. While the VW Group will be in charge of electric cars, its high-end subsidiary Audi will look after fuel cell development.

Within 10 years, according to Mr. Müller’s plan, VW, Audi, Porsche, Seat and Skoda would build one million electric cars annually — a dramatic boost since last year the company sold only 67,000 cars with electric drive. Most of those were hybrid vehicles, meaning they also run on gasoline.

 

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But a big strategic question arises in the e-fleet expansion: Namely, where will Volkswagen get all the batteries it needs?

One possibility would be the producers Panasonic, LG or Samsung delivering them. But that would make Volkswagen dependent on the Asian companies, say company sources.

“Setting up of our own battery production is being planned as an alternative,” said a manager.

That would be a huge step costing several billions. For in order to cover their own demand, VW would have to follow the example of electric car rival Tesla Motors.

The Silicon Valley-based company is building a giant plant in the state of Nevada — called Tesla Gigafactory 1 — to supply lithium-ion batteries for a half-million cars annually. Tesla will not only be able to cover its own needs with the factory, but also lower the cost of batteries by 30 percent, says Tesla co-founder and CEO Elon Musk.

Tesla and Panasonic are sharing the investment costs of up to $5 billion.

Volkswagen is also dependent on such cost advantages through mass production. So far, electric cars have been too expensive for most customers and money losing for manufacturers.

But cost ratios are changing. While the cost of batteries is going down, expenses for combustion engines are going ever higher. Just like the rest of the industry, VW must meet the European Union’s climate goals.

Meantime the diesel engine, so far the all-purpose weapon for lowering fuel consumption, will be of little use after the emissions scandal. Major cities like London and Paris are even thinking out loud about banning fossil fuel engines from city traffic in the long term.

So building VW’s own battery factory is increasingly finding supporters in company ranks. Bernd Osterloh, the employee representative on the supervisory board, has strongly supported such an investment in the past. And the state of Lower Saxony, as a major shareholder, is basically in favor of it — especially if the factory were built near Wolfsburg.

 

Shockingly Low Germanys Electric Car Market-01

 

In VW management, as well, the mood is tending toward their own production, company sources say. A battery factory would cover Volkswagen’s own needs and put the company on the cutting edge of this new technology.

The risks are equally as huge. It is less about the initial investment but rather the operation. Consultants say VW must master the production processes at least as well as the Koreans, otherwise the investment will quickly turn into a huge liability.

For that reason, group strategy head Thomas Sedran’s team is doing the calculations on various locations for a factory. They say the costs for energy and logistics are decisive. Whether in the end a factory will be built in Germany, Eastern Europe or Asia, they say they don’t know.

The state and the works council are pushing most of all for Kassel in northern Hesse and Salzgitter in southeastern Lower Saxony, since going electric means that, in the long term, components like transmissions and engines will be eliminated— and with them, possibly thousands of jobs.

But the project will only succeed with partners. Should there be a decision in favor of building a battery factory, then the management board would look for interested parties. If they don’t want to leave the field to Asian companies, then it could be Bosch or Continental. The trend toward electric cars now threatens the two German-based auto supply giants with a drop in sales.

One thing is certain, the change of course planned by Mr. Müller will have an effect far beyond his corporation. And if VW decides for its own battery factory, it could be the needed push toward electric mobility throughout the German auto industry.

 

Martin Murphy is an editor with Handelsblatt and specializes in the automotive, defense and steel industries. Markus Fasse covers the aviation and automobile industry. To contact the authors: murphy@handelsblatt.com and fasse@handelsblatt.com

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