It hasn’t been a good week for German automakers or the European auto industry. First, a top court on Tuesday paved the way for driving bans for diesel cars in German cities. Then Bosch, the world’s biggest automotive supplier, threw in the towel on developing its own battery cells, saying the investment would be too risky. With other European battery startups years behind, that leaves a crucial component of electric cars to Asian or US players such as Samsung, Panasonic, BYD and Tesla.
Bosch said it was ending its research into cell technologies and would dissolve its LEAP joint venture for lithium-ion technology with Japanese partners, GS Yuasa and Mitsubishi Corp. It will also sell US start-up Seeo Inc., which it acquired in 2015 to enhance its expertise in next-generation lithium-ion batteries.
Bosch’s decision will disappoint European politicians, who want to reduce the current dependency on Asian manufacturers and boost local production that can compete with Tesla’s Gigafactory, a joint venture with Panasonic based in Nevada. It will cost $5 billion to build and reach full production capacity of 35-gigawatts in batteries by 2020.
“For new entrants, market conditions are more than challenging.”
Battery cell production offers huge future growth as the world gears up for the mass production of electric cars. With conventional cars, the most valuable component is the engine. With e-cars, it’s the battery because engines are relatively simple and have far fewer components.
For Bosch, however, producing batteries is too big a leap and would require the biggest investment in its 132-year history. CEO Volkmar Denner let his colleague Rolf Bulander, head of the group’s mobility solutions division, drop the bombshell. “A planned leading position with a market share of 20 percent would have required an investment of €20 billion ($24 billion),” Mr. Bulander said on a conference call. “In the overall interest of the company, such an investment is not justifiable. For new entrants, market conditions are more than challenging.”
The cell market is highly competitive and leading manufacturers are trapped in a price war. Asian producers dominate the market with 9 out of 10 cells on the global market produced by firms including LG Chem, AESC and China’s CATL. Another drawback is that material costs account for three quarters of production costs, leaving little room for a company to forge competitive advantages, Mr. Denner said recently.
Bosch’s decision comes a week after French specialist Saft, a unit of oil company Total, launched an alliance to develop and produce battery cells. Germany’s Siemens will supply the automation technology for the assembly pieces, engineering firm Manz will provide the machinery and the chemicals will come from Belgium’s Solvay. Two European startups are also vying to launch large-scale production: German startup TerraE and Sweden’s Northvolt. These companies, however, are a few years behind Tesla and Asian rivals.
Mr. Bulander said Bosch remained committed to becoming the auto industry’s “number one partner” for electric mobility by 2020 and would continue to produce battery systems. But it will buy the cells from suppliers. “We must understand the cell technically but we don’t have to produce it ourselves,” he said. “We will purchase cells. We’re saying ‘no’ to cell production but ‘yes’ to batteries.”
Bosch, a major supplier of diesel engine parts, has no choice. If European customers stop buying diesel cars due to city bans, the company needs alternatives.
Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent, where Bosch, Daimler and Porsche have their headquarters. To contact the author: firstname.lastname@example.org