Salzgitter The VW Group begins building its first battery cell factory in Salzgitter, Lower Saxony. “Salzgiga will become the battery center for the entire group,” said CTO Thomas Schmall on Thursday at the laying of the foundation stone for the two-billion-dollar project. The new Volkswagen cell will be developed in Salzgitter, “which we will then bring into the world”.
For the car manufacturer, the first cell factory is an important showcase project. VW wants to prove that the group can transform itself into an electrical manufacturer and can also master completely new processes such as the production of battery cells.
For politicians, the laying of the foundation stone is proof that change is succeeding in Germany. That is why Chancellor Olaf Scholz and Lower Saxony’s Prime Minister Stephan Weil (both SPD) also attended the laying of the foundation stone.
Chancellor Scholz sees the VW Group’s new battery cell plant in Salzgitter as an important step on the way to reducing dependence on suppliers of central technologies from other regions of the world. In the past, many would have thought that the core parts of electric car batteries could only be ordered in Asia, he said on Thursday at the start of construction of the factory in Lower Saxony.
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“Today we know that better.” Torn supply chains caused by the Corona crisis and the Ukraine war made it clear: “The dependency means a great risk in some strategic fields. That is why you have a special task in Salzgitter.”
VW CEO Herbert Diess spoke of a “historic milestone”. The production of battery cells is a cornerstone of Volkswagen’s new automotive strategy. “We bring cutting-edge technology to Germany,” he said.
Chancellor Scholz spoke of a “good day for the automotive industry in Germany and Europe”. Volkswagen is showing what the climate-friendly future of mobility could look like. “Together we are laying the foundation for this future to be made in Salzgitter,” emphasized the Chancellor.
Salzgitter will not remain the only location where the Volkswagen Group is building a cell factory. A total of six such gigafactories, each with a capacity of 40 gigawatt hours, are to be built in Europe by 2030. This means that a total of around five million electric cars could be fitted with a vehicle battery every year.
VW estimates the financing required for this to be at least 20 billion euros. The European automotive industry will probably need 30 of these gigafactories in total.
That is why new cell factories are currently being built all over Europe. The Asian manufacturers CATL, Samsung and LG Chem are already producing in Eastern Europe, Tesla is planning a factory in Brandenburg. The Chinese manufacturer CATL wants to open another plant in Thuringia. With the Automotive Cell Company (ACC), Stellantis, Mercedes and Total have founded a joint venture. Two ACC factories are planned so far: one at the Opel site in Kaiserslautern, a second in Douvrin in northern France.
The VW Group will also need more cell plants in the foreseeable future. Since practically the entire truck range of the Traton truck division is to be electrified, three more battery factories will probably have to be built. Volkswagen also has a need in North America, where two plants could be built. In China, the group will set up the required cell factories with state partners from its joint ventures.
Volkswagen is building more gigafactories in Sweden and Spain
In addition to Salzgitter, two other battery locations have already been set in Europe. In the Swedish town of Skelleftea, Volkswagen, together with its partner Northvolt, is building a factory for more powerful premium cells, which is intended in particular to supply the Group’s subsidiaries Audi and Porsche. Not far from Valencia, a factory is being built to supply the group’s Spanish car factories.
Another location in Eastern or Central Europe is also secured. Countries such as the Czech Republic, Hungary and Poland are under discussion. “We can hardly save ourselves from applications,” said VW CEO Herbert Diess. This factory should primarily serve to supply the Czech subsidiary Skoda, and there are also lithium deposits in the German-Czech border area in the Ore Mountains – the most important raw material for the batteries. The Czech Republic therefore probably has the best prospects of being selected as a further location. A decision could be made by the end of this year.
With the fifth and sixth location, Volkswagen wants to take a little more time. The Lower Saxony state government is hoping for another location near Emden – not far from the coast and a VW plant that has been converted to electric cars. Wind turbines on and in the North Sea could supply this factory with wind power at low cost. Another Eastern European location would also be conceivable in Romania or Bulgaria.
“Volkswagen is on the right track,” said Ferdinand Dudenhöffer, automotive professor at the Center for Automotive Research (CAR) in Duisburg. The Wolfsburg car group is seriously pursuing the change to an electric supplier. This also includes setting up our own battery production.
Gotion from China is helping as a technology partner at the Salzgitter plant
Due to the large financing requirements in the entire group, Volkswagen definitely wants to build the new cell plants with partners. The first example was the Swedish company Northvolt, in which the Wolfsburg car group has held around 20 percent of the shares since 2019. Just a few days ago, Northvolt raised 1.1 billion US dollars in another round of financing, in which VW again participated.
The Chinese cell manufacturer Gotion is helping to build the factory in Salzgitter. Two years ago, Volkswagen invested a good one billion euros in the Chinese company, making it the largest shareholder with 26 percent. At that time, the VW Group was the first international car manufacturer to take a direct stake in a Chinese cell supplier.
Above all, VW needs Gotion as a technology partner because the necessary know-how about cell production is only gradually emerging at the Wolfsburg car manufacturer. Gotion therefore provides direct help in Salzgitter with the factory layout, the construction of the production facilities and the definition of the production processes. Salzgitter is to become a standard factory that the VW Group can mirror at the other planned cell sites in the coming years at comparatively low cost. The first cells are to be produced in Salzgitter in 2025.
To finance cell production, Volkswagen is also working on an IPO for the division. Since July 1, “PowerCo” has existed as an independent European stock corporation (“SE”) with its own board of directors, in which the main parts of the battery sector are combined. By the end of the decade, “PowerCo” is expected to have annual sales of 20 billion euros and 20,000 employees.
Volkswagen wants to standardize the factories and battery cells
Volkswagen not only wants to standardize the factory layout, but also the actual battery cells. The group is therefore working with Gotion on a standard format, the unit cell. In the coming years up to 2030, it should cover around 80 percent of all requirements and thus make a decisive contribution to reducing costs.
With the unit cell, Volkswagen wants to gradually reduce the costs for batteries by up to 50 percent in the entry-level segment and by up to 30 percent in the volume segment. Chief Technology Officer Thoma Schmall emphasized: “We will also use our economies of scale for the benefit of customers with the battery. On average, we will reduce the costs for battery systems to well below 100 euros per kilowatt hour.”
At the same time, Volkswagen is trying to secure direct access to battery raw materials. The group has therefore concluded supply contracts with companies from China, for example. The German lithium producer Vulcan Energy will also supply VW. By the end of the current decade, recycling is also set to play a key role, because by then there will be millions of older electric cars whose batteries can be reused.
Volkswagen wants to keep everything in its own hands, from battery recycling to the procurement of raw materials, and thus secure employment. Like its US competitor Tesla, the VW Group is thus pursuing the principle of vertical integration. The entire value chain along the electric car is to be brought together as far as possible under the umbrella of the group and under VW leadership.
“We are increasingly sourcing in, not out. It is crucial that we control the value drivers of the future ourselves – and these are software and batteries,” said CEO Herbert Diess. Volkswagen benefits “from this clear strategy” and will use it to gain a competitive edge.
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