New York, Vienna, Zurich In view of the impending bottlenecks in important raw materials for battery production, Volkswagen wants to focus more on Canada. The car manufacturer and the Canadian government will sign a declaration of intent to expand electromobility this Tuesday, as the Handelsblatt learned in advance. Both parties agree to examine how Canada can contribute to VW’s supply of raw materials.
According to Wolfsburg, PowerCo, the group’s newly founded battery company, plays a central role. This is intended to promote cooperation in the areas of battery value creation, raw material supply chains and cathode material production in North America.
“We don’t open our own mines, but we want to invest in Canadian mines and mine operators,” VW technology board member Thomas Schmall told Handelsblatt. The aim is to guarantee volumes and prices through long-term supply agreements, for example as part of a joint venture with PowerCo.
For example, 20 to 30 percent of a mine’s annual production could then be purchased at a fixed price from the VW battery subsidiary. The idea is that the mine operators could sell the remaining 70 to 80 percent at world market prices. “Canada has practically all the raw materials that we need for battery production,” says Schmall. There are large volumes of nickel of the highest quality, plus copper and cobalt. “And there’s a lot of mining activity.”
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80 percent of the cell costs are raw material costs, explains Schmall. “The big car manufacturers used to think it was enough to buy cell factories. Today we know that we have to go much deeper into the value chain.”
Billion investment in Canada possible
The letter of intent will be signed by outgoing VW CEO Herbert Diess and Canadian Minister of Industry François-Philippe Champagne. Chancellor Olaf Scholz (SPD) and Canadian Prime Minister Justin Trudeau are also said to be present.
“Canada has practically all the raw materials we need for battery production.”
(Photo: Reuters)
From a Wolfsburg perspective, the VW subsidiary PowerCo is predestined for this venture. Under the leadership of Schmall, the new battery company has developed a standard cell that will be used in 80 percent of the group’s electric cars in the future. This enables the use of economies of scale.
“In the future, we will need many more battery cells,” says Schmall. “For this we need reliable raw material supplies.” Specifically, VW wants to set up six battery cell factories in Europe and another in North America to supply the ambitious product pipeline.
When it comes to mining investments, less is more, according to Schmall. “We’re talking about a handful of interface partners at most.” Overall, PowerCo wants to invest a double-digit billion amount in the development of the global battery value chain together with partners. In Canada, it could be in the single-digit billions.
If the initiative were implemented, VW would be the first western car company to take a direct stake in mine operators on a larger scale. At the end of July, General Motors signed a multi-year supply contract for lithium from South America with the US chemical company Livent; there was a similar contract with MP Materials.
Ford has also signed a number of commodity sourcing deals with mining giants, including BHP and Rio Tinto. However, a direct stake in mines is not included.
Tesla boss Elon Musk, in turn, had tweeted in view of the rapidly increasing lithium prices that Tesla could be forced to enter the mining business. However, no concrete steps were announced. Asia is already further along. The Chinese car manufacturer BYD is planning to invest the equivalent of around 4.1 billion euros in a battery factory and a mining project in the province of Jiangxi, as was recently announced.
Mercedes-Benz is also planning an announcement
Not only VW has big plans in Canada. The Stuttgart car manufacturer Mercedes-Benz also wants to sign a declaration of intent on a possible raw material procurement on Tuesday, according to industry circles. Chief Technology Officer Markus Schäfer, responsible for development and purchasing, is part of the delegation led by Scholz and Economics Minister Robert Habeck (Greens).
Mercedes confirmed the visit to the Handelsblatt. The group left it open what exactly they would announce on site. According to reports, the Swabians are striving for better security in the supply chain when purchasing important materials such as lithium, nickel, cobalt or manganese. Concrete agreements are still pending.
While Mercedes and VW want to get even deeper into the procurement of raw materials, BMW, as the third major German carmaker, is already one step further. The Munich-based company decided years ago to buy critical raw materials themselves from producers and later pass them on to battery cell manufacturers.
The advantage: BMW has insight into the origin, mining methods and prices. For example, BMW purchases lithium from Gangfeng in Australia and from Livent in Argentina. A cobalt supply contract exists with the Moroccan mining group Managem.
VW plans new Gigafactory in North America
If VW implements its plan and gets involved directly with Canadian mines, the Wolfsburg-based company would be at the forefront of the movement. A possible partner could be Umicore. The Belgian group is planning a joint venture with VW for cathode production in Europe and recently announced the construction of a Canadian site. According to VW circles, negotiations are currently underway.
The carmaker not only wants to control the supply of raw materials, but also battery cell production. The group is therefore accelerating the construction of the first cell factory in North America. The location is currently being examined, says board member Schmall.
The batteries are subjected to extreme stress tests in Chattanooga.
“Several factors play a role in the choice of location. Large amounts of raw materials have to be moved for a battery. Therefore, sustainable supply routes and green energy sources are needed,” says the manager. Canada is an attractive location here, but you are in the middle of the selection process. “The goal is to set up our own local battery cell supply to secure our e-offensive in North America,” explains Schmall. In addition to Canada, a location near the US main plant in Chattanooga is also in the running.
The manager does not share the concerns of experts that VW could overwhelm itself with the raw materials initiative. “PowerCo has put together an excellent team around the world that has deep knowledge of the subject.” For example, VW hired former Apple battery chief Soonho Ahn. “If we wanted to build up all the expertise ourselves, it would take far too long. We shorten the learning curve with external experts,” explains Schmall. Among the German manufacturers, VW is at the top with its initiative.
The agreement will enable VW “to work even more closely with local suppliers in the future,” adds Pablo Di Si, designated VW North America boss. By 2030, the aim is to bring more than 25 new electric models onto the market. “A diversified, localized battery supply chain will be a key element to drive ambitious growth plans in North America.”
Impending raw material shortages
Experts welcome VW’s step, but also see risks. “It is logical that VW is making progress in vertical integration,” says Christian Koenig. The car expert has worked for Porsche in North America and runs an electromobility consultancy in Atlanta.
“For decades, car manufacturers have outsourced a lot of production to suppliers. Since the success of Tesla, however, it has become clear that it is more promising to develop the core technologies of the electromobile future in-house,” says Koenig. However: “At first, a car manufacturer understands very little about the mining business. Here, manufacturers will have to weigh up exactly how they position themselves when sourcing raw materials in order not to overwhelm their own organization and not get bogged down.”
There is a simple reason why more and more car manufacturers are taking matters into their own hands to secure the supply of raw materials: demand is likely to exceed supply for many raw materials in the coming years. In a recent study, which was previously available to the Handelsblatt, the management consultancy BCG warns of “chronic bottlenecks” in lithium.
Even if all mine projects that are currently considered likely or possible are realized, demand could exceed supply by four percent or around 100,000 tons in 2030. In 2035, the supply gap could be 24 percent, or one million tons of lithium, according to the study.
>> Read also: Lithium for electric car batteries is becoming scarce
Added to this is the high geographic concentration of many battery metals. Chile exports 66 percent of the lithium carbonate required for cell production. The processing of lithium carbonate from lithium ore dominates China. In the case of nickel and cobalt, the geographic dependency is sometimes even greater.
The price of lithium carbonate hit a record high in June at around $80,000 per ton. Within a year, the price has almost quintupled. The rapid rise in the price of lithium, nickel, copper and cobalt stopped the trend of falling battery cell prices in 2022.
criticism from environmentalists
Not everyone on site is happy that Canada could now become the preferred partner of German car manufacturers. “Continued and ever-expanding mining is neither ecologically nor socially sustainable,” says Jamie Kneen of the environmental organization Mining Watch. Instead of always opening up new mines, it would be better to expand the circular economy and thereby “actually reduce the net demand for new materials”.
In the mining business, the interests of indigenous peoples are often disregarded and environmental assessment procedures are inadequate. This increases the risk of mine waste disasters, “watershed pollution” and “loss of sensitive ecosystems”. Admittedly, Canada’s regulatory environment is “better than in some other countries,” says Kneen. But it is “far from being acceptable”.
More: Electric offensive in the USA: VW opens battery laboratory in Chattanooga.