Volkswagen Plans To Dominate Electric Vehicle Manufacturing In China
China has the largest new car market in the world (although it has cooled somewhat of late) and the most aggressive policies encouraging the adoption of electric cars. Therefore, any company with plans to sell electric cars needs to be a force in the Chinese market. Volkswagen has seen the future and plans to become one of the largest manufacturers of electric vehicles in China, according to CNBC.
It is retooling 6 manufacturing facilities around the world to produce vehicles based on its new MEB electric car platform — two in Germany, one in the Czech Republic, one in the US, and two in China. Its two Chinese facilities are the Foshan factory, which it operates in conjunction with FAW, and Anting, which VW runs in partnership with SAIC.
Volkswagen says it plans to build 22 million EVs over the next 8 years, nearly half of which will be made in China. It expects to produce 600,000 EVs a year at those two Chinese factories alone, and will offer 15 electric car models in the Chinese market by 2025. By comparison, Tesla expects to manufacture about 150,000 Model 3s annually at its new factory in Shanghai. It may also build an indeterminate number of its new SUV, the Model Y, at that factory as well.
Tesla is perceived as the global leader in cutting edge technology, but Volkswagen has the edge in price and massive economies of scale throughout its global supply chain. VW is also leveraging the investment it has made in the MEB chassis by licensing the design to other manufacturers. It should realize about $10 billion in income from its cooperative agreement with Ford over the next several years, for instance. Thomas Ulbrich, Volkswagen’s member of the board who oversees production of electric vehicles, told Reuters recently, “Ford and Volkswagen’s agreement will be a blueprint for further licensing deals.”
You might think Volkswagen would start off producing its all new ID.3 electric sedan in China, but company sources say an SUV-type vehicle will have priority. Like many other countries around the world, demand for SUV-type vehicles is exploding in China. The ID.4 — formerly known as the ID. Crozz — is just such a vehicle and reportedly will be the first electric car Volkswagen will sell in America.
Battery supply will be crucial to the EV revolution. “There is a lot of investment,” Stefan Sommer, Volkswagen Group’s board member responsible for procurement, told Reuters last month. “But even the big companies like Samsung, CATL, LG Chem, the big guys, SK, they hesitate to take so much money and invest because they are not seeing the market on the other side. We are now seeing the first battery plants, LG in Poland, CATL in Germany, they don’t have the skilled workforce. That will be the bottleneck. It’s a learning curve everybody has to work through. This will cause some lags in supply. We have no other choice.”
As EV production ramps up worldwide, battery supplies will be the limiting factor. Volkswagen has already committed more than $50 billion to its battery suppliers for deliveries over the next 5 years or so. A lot of those batteries will go into cars manufactured and sold in China.
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