Carmakers’ battery plans in peril as raw material costs soar


In the race to impress the automobile trade, Silvia-Luna Yzaguirre Sánchez’s battery cell growth experience is in ever larger demand.

But the Spaniard — armed with a double diploma in engineering and an MBA — has spurned Silicon Valley and Asian hubs for the outskirts of the small north German metropolis of Salzgitter, the place she is spearheading a late surge into battery cell manufacturing by Volkswagen, the world’s second-largest carmaker.

“If I go somewhere where there are 1,000 like me, what is the point?” Yzaguirre Sánchez stated of VW’s tech rivals. With VW and its companions committing to €20bn in investments for six European battery crops, she hopes to get in on the bottom ground of the group’s “global battery offensive”. 

Yet VW, together with most different conventional automobile producers, is enjoying catch-up. In 2018 — even as Tesla was producing its personal battery cells with the assistance of Panasonic in Nevada, and the most important international battery maker, China’s CATL, introduced it was constructing a manufacturing unit in VW’s again yard — former boss Matthias Müller dismissed the concept of the group doing the identical, preferring to signal procurement offers with principally Asian producers.

“This is not one of our core competencies,” he stated of battery cell manufacturing, including that “others can do it better than we can”. A number of months later VW invested €450mn in Sweden’s Northvolt, earlier than deciding to carry battery cell manufacturing in-house in any case, as the EU’s stricter emissions rules compelled it to construct “significantly more” capability by 2030.

American opponents GM and Ford have, conversely, continued to comply with Müller’s mantra. They have signed offers with Korean battery producers LG and SK On respectively to produce components for his or her electrical ambitions and, in General Motors’ case, assist construct 4 devoted crops in the US with a complete of 160 gigawatt hours of manufacturing by the center of the last decade.

Stellantis, the group behind Peugeot, Fiat Chrysler and Jeep, has established comparable partnerships with LG and Samsung SDI.

Ford, which says it has secured 60 GWh of annual cell manufacturing by late 2023 for 600,000 electrical automobiles, additionally positioned an enormous wager final month on a partnership with CATL to produce lithium iron phosphate batteries, a less expensive choice with much less vary than a rival chemistry that makes use of extra nickel and cobalt.

Neither technique is a assure of success, based on Tim Bush, an analyst at UBS in Seoul. “Even the players who have been in the industry for 20 years are struggling to bring scaled facilities online at greenfield locations,” he stated, referring to the obstacles that the likes of Korea’s LG and Japan’s Panasonic have confronted in Poland or Nevada and Tesla’s struggles to ramp up manufacturing of its next-generation 4680 battery cells.

“Right now, 85-90 per cent of materials that go into a battery are coming from China,” Bush added, and the incumbents have locked up a lot of the out there provide. Ford’s latest agreements to safe the minerals and cathode supplies for its batteries have been largely non-binding.

Silvia-Luna Yzaguirre Sánchez
Silvia-Luna Yzaguirre Sánchez is spearheading VW’s late surge into batteries © Sebastian Dorbrietz/FT

The price of crucial raw supplies that stay on the market is hovering. The worth of lithium carbonate hit an all-time excessive in April and remains to be eight instances what it was firstly of final 12 months.

More crucially, availability of minerals is a looming downside for latecomers VW, Ford and GM, with the latter agreeing final week to pre-pay $200mn to lithium producer Livent for provides. Scott Yarham of S&P Global Commodity Insights predicted that together with the lithium provide crunch, shortages of nickel and cobalt are prone to comply with later this decade.

“There’s a lot of investment in battery cell manufacturing in Europe and the US, but not sufficient enough in the raw materials,” he stated.

“There’s going to be a big disconnect.”

Things look no higher farther down the manufacturing chain. Mathias Miedreich, chief govt of Umicore, one in all Europe’s few makers of significant cathode lively supplies used in batteries, and a VW companion, says that automobile producers are scrambling to construct relationships with suppliers after the “traumatic experience” of semiconductor shortages.

He warns that there can be “a scarcity of supply” of battery cell element manufacturing, even when there’s sufficient funding in mining and battery crops, as a result of intricacies of the manufacturing course of.

At Salzgitter, VW, whose electrical technique accounts for half of all vehicles offered in 2030 being battery-powered, has added additional complexity by selecting to transform an current diesel engine plant quite than construct on a brand new web site and retrain employees there to work on battery know-how.

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“It’s both a blessing and a curse,” stated Frank Blome, chief govt of PowerCo, VW’s newly fashioned battery manufacturing unit. “The change is stressful because we still have to mass produce, develop and update the combustion engines. And we’re doing batteries in parallel.

“On the other hand, we have everything here at the site to build a new plant, all the infrastructure, all the experts.”

VW hopes to begin manufacturing at Salzgitter in 2025 and scale as much as 40 GWh of annual manufacturing on the web site, sufficient for about 500,000 electrical automobiles, and attain a complete of 240 GWh throughout six places 5 years later.

The ramp-up comes at a time when Europe’s industrial competitiveness is underneath risk, with power provides more and more constrained by the battle in Ukraine. Were Russia to chop off all gasoline provides to Germany this winter, battery crops can be compelled to stop manufacturing instantly, ZVEI, which represents the nation’s electrical trade, has warned.

Yet the battle has additionally strengthened the resolve of western governments to scale back their reliance on overseas suppliers. The US and Europe have pledged billions of {dollars} in subsidies to firms who construct crops in their international locations and can incentivise native sourcing of raw supplies and battery elements.

Battery components being tested at VW’s Salzgitter site
Battery elements being examined at VW’s Salzgitter web site © Sebastian Dorbrietz/FT

“Not so long ago, many in Germany believed that battery cells . . . could always be ordered from Asia,” stated German chancellor Olaf Scholz throughout a go to to Salzgitter final month. “Now we know better. The coronavirus pandemic and Russia’s brutal assault on Ukraine have made it clear that a reliance on global supply chains in certain strategic areas is a big risk.”

The danger was underlined final week by stories that China’s CATL had postponed a choice on a US web site slated to produce Tesla and Ford, following a go to to Taiwan by Nancy Pelosi, the Speaker of the US House of Representatives.

That transfer got here a couple of weeks after GM companion LG stated it could rethink a deliberate plant in Arizona because of “unprecedented economic conditions and investment circumstances in the United States”.

Ford’s companion, Korea’s SK On, the world’s fifth-largest battery-maker, will lose roughly $760mn this 12 months on $5.3bn in income, based on UBS’s Bush, as the upper costs of manufacturing start to chew.

Rising costs might additionally damage VW’s standalone plans. An additional €10bn funding can be wanted to safe raw supplies for its six factories, chief monetary officer Arno Antlitz stated in March.

He didn’t rule out an preliminary public providing of PowerCo or tie-ups with different firms to assist pay for battery manufacturing, as additional websites in Sweden and Spain come on-line following the transformation of Salzgitter.

None of this deters Yzaguirre Sánchez, who insists the group’s delayed entry into battery know-how needn’t maintain it again.

“We don’t need to be the ones to invent the wheel,” she stated of VW’s plans. “We just have to create the right partnerships.”

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