In May 2017, Volkswagen (VW) brand CEO Herbert Diess claimed that VW will surpass Tesla to be the world leader in electric mobility by 2025 – an aggressive target, but coming from a company with the resources to achieve it. At the International Motor Show in Frankfurt, Germany, VW CEO Matthias Müller announced Volkswagen’s Roadmap E, committing those resources to a strategy that aims to transform one of the world’s largest OEMs. This roadmap is made up of several key initiatives:
- Offering electric versions of all 300 models in the VW group by 2030, including 50 new electric vehicles (EVs) and 30 new plug-in hybrid EVs (PHEVs) by 2025, which it believes will make up $2 million to $3 million in annual sales
- Earmarking $24 billion for e-mobility investments, including new vehicle platforms, charging infrastructure, upgrading plants, and retraining its workforce, and investing in battery technology and production
- Offering a $60 billion tender for battery suppliers, as VW expects its electrification portfolio to require 150 GWh of demand by 2025
The impact on the global energy storage market would be significant, as it would represent 64% of expected demand in the year 2025. However, aggressive plug-in targets and forecasts have been off the mark in past years, and announcing a target is no indication of a company’s ability to execute that strategy. There are two key areas that Volkswagen will need to execute on to meet its targets.
- Capturing growth in Asia: VW was not explicit in saying which markets were its key focus, although did note it was exploring battery supply chain strategies in North America, Europe, and Asia. However, VW will need to achieve success in China and India in order to reach its goals. China rapidly emerged as the largest market for PHEVs, and is now targeting some of the world’s most aggressive PHEV mandates globally. Breaking into China has been difficult for foreign OEMs, which are required to form joint ventures (JVs) with Chinese OEMs to manufacture cars in the country. The VW group, which sold nearly 4 million vehicles in China in 2016, recently formed a JV with JAC, adding to longstanding ventures with SAIC and FAW. VW also was reportedly a key player in CATL’s decision to acquire further cobalt resources, and agreed to purchase batteries from CATL to ensure the purchase of such a large quantity.
- Expanding its electric product lineup: Most EVs released to date focus on reducing weight and size in order to maximize range from smaller battery packs, with the exception of Tesla. However, 2017 has seen a slew of announcements around larger SUVs exemplified in the Shanghai Auto Show, and also in announcements from Kia, Nissan, and Jaguar, among others. Some of the first products on VW’s roadmap will include the I.D. (hatchback), I.D. Buzz (minivan), and I.D. Crozz (crossover SUV) – representing a wide range of vehicle types. VW is already laying the groundwork to expand its lineup beyond small vehicles and hatchbacks, and moving into more profitable segments in vogue with consumers.
Ultimately, time will tell if VW can actually execute on its strategy, but it can’t afford empty promises following its diesel emissions scandal and pressure from the German government on its domestic automotive industry. Given VW’s resources, expanding its PHEV lineup, and efforts to secure resources across the supply chain, VW should now be considered the best-positioned OEM to lead the industry in electrification in the next decade. Readers with stakes in the Li-ion battery supply chain should look to engage VW directly, as the company is positioned to be a lucrative source of demand, but protect against potentially over-ambitious targets with contract guarantees, co-funding projects with VW, or other mechanisms. A similar strategy can be explored with other OEMs that may be looking to counter VW’s announcement with expansions of their own.
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By: Christopher Robinson