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VW preparing for mass-scale EV manufacturing: Roskill

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VW preparing for mass-scale EV manufacturing: Roskill

Highlights

VW to invets €1 billion in increasing JAC Volkswagen share from 50% to 75%

Another €1.1 billion to be spent on 26% share in battery maker Guoxuan High-Tech Co.

Roskill says move shows VW's intention to grow EV presence inorganically in the highly competitive Chinese market

New York — Volkswagen is one of the few automakers already implementing its long-term electrification strategy and preparing for mass-scale electric vehicle manufacturing, despite the negative outlook for the auto industry due to the coronavirus pandemic, Roskill analysts said June 1.

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The company announced May 29 that it had moved to increase volume of electric vehicle models and infrastructure in China by signing letters of intent with the government of Anhui province to invest around €1 billion ($1.1 billion) to acquire a 50% share in government-owned Anhui Jianghuai Automobile Group (JAG), the parent company of its joint venture partner JAC. The move will increase its share in its e-mobility joint venture JAC Volkswagen to 75% from 50%, giving it management control.

VW is also planning to spend around another €1.1 billion to acquire a 26% stake in battery manufacturer Guoxuan High-Tech Co. (Gotion), making it the largest shareholder and the first global automaker to invest direct in a Chinese battery supplier. Through this deal, the company aims to secure future demand for batteries for its Chinese e-models, as well as achieve deeper know-how in the field of batteries.

"Investment by the German company in a rival automaker points to its intention to grow its EV presence inorganically in the highly competitive Chinese NEV market," Roskill analysts Jose Lazuen and Kevin Shang said in a note.

They noted that VW had secured battery supplies in Europe through its involvement with LG Chem, Northvolt, and CATL, and was looking to secure supplies in China with SAIC, FAW, and now JAC.

"Guoxuan High-Tech is expected to partly supply the new venture with JAC, as both are based in Hefei. Also, the fact that Guoxuan High-Tech was operating around 10GWh of LFP battery manufacturing capacity in 2019, out of a total of 16 GWh, suggests that Volkswagen may want to replicate Tesla's cost-reduction strategy for the Chinese market through LFP cells, already priced by some suppliers under $100/kWh," Lazuen and Shang said.

They noted that, although Gotion's manufacturing capacity was expected to go beyond 30GWh this year, it would still struggle to supply VW's 2025 goal of 150-GWh battery demand in China.

"In this regard, CATL is expected to be one of the largest contributors to Volkswagen's battery strategy. From its Liyang battery plant, CATL will supply battery cells to SAIC-Volkswagen's MEB plant in Anting," they said.

VW said in the announcement that the Gotion deal would not affect ongoing contracts with other battery suppliers and it expected to complete both deals by the end of 2020, subject to customary regulatory approvals. It also said Gotion was in the process of becoming a certified VW Group battery supplier in China, including supplies for local MEB vehicles, with MEB being the new modular EV platform of the VW Group.

Simpler modular design

The Roskill analysts said the MEB platform would allow for a simpler modular battery pack which would allow consumers to get more range by adding more modules.

They noted, however, that VW had said that the simpler modular design would allow it to use different cell sizes and formats from different cell suppliers, reducing dependence on any singular supplier.

Lazuen and Shang said they expected this approach to allow VW to push down further on battery cell prices, as its pack design wouldn't be captive of a specific cell design, allowing it to switch indistinctly among different suppliers.

VW CEO Herbert Diess said the company was strengthening its electrification strategy in China.

"The electric cars segment is growing rapidly and offers a great deal of potential for JAC Volkswagen," Diess said. "We are actively driving forward the development of battery cells in China through our strategic investment in Gotion."

VW Group China CEO Stephan Wöllenstein said the investments would make VW in China a "more localized, more sustainability-focused mobility company," and giving it more business opportunities. He added that VW Group China aimed to become a net carbon-neutral company and in 2025, around 1.5 million new energy vehicles were planned for delivery to customers across the country.