Pow­er­ing an elec­tric fu­ture

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Amove to fully elec­tri­fied cars will cost cus­tomers more than €3-tril­lion for bat­ter­ies alone, Volkswagen CEO Her­bert Diess has cau­tioned.

China re­cently an­nounced that it was work­ing on a dead­line to end fos­sil-fuel cars on its roads, while the UK and France have both put a 2040 dead­line on a switch to elec­tric or fu­el­cell cars.

Diess has warned that some car mak­ers could miss China’s tar­get date for end­ing in­ter­nal com­bus­tion power be­cause of a short­age of bat­ter­ies and lithium. China, which he be­lieves will lead the world to­wards elec­tric cars, al­ready has car mak­ers work­ing to­wards a tar­get of 15% elec­tri­fi­ca­tion by 2025.

“If you think about 15% of elec­tric cars by 2025 [glob­ally], we need be­tween 60 and 100 gi­gafac­to­ries, with an in­vest­ment for each one of €5bn,” Diess says. “Who is putting the money in? How long do they take to build? I think it [bat­tery sup­ply] will be a con­straint.”

On Diess’s fig­ures, mov­ing to 100% bat­tery elec­tric ve­hi­cles (BEV) would de­mand be­tween 400 and 670 gi­gafac­to­ries around the world, at a cost of be­tween €2-tril­lion and €3.3tril­lion. Both fig­ures are far higher than the mar­ket cap­i­tal­i­sa­tion of ev­ery car maker in the world com­bined.

An­other po­ten­tial prob­lem is the sup­ply of raw ma­te­ri­als for com­plex bat­tery sys­tems, such as lithium for lithium-ion bat­ter­ies. Toy­ota has bought up lithium mines in Bo­livia, while Volkswagen (VW) has hedged its bat­tery costs and sup­ply lines with deals spread across a num­ber of sup­pli­ers and an­nounced a fur­ther €50bn ten­der at the Frank­furt Mo­tor Show.

“The cost of the bat­tery is the most ex­pen­sive part of the whole bat­tery elec­tric ve­hi­cle,” Volkswagen brand di­rec­tor of de­vel­op­ment Frank Welsch points out.

“The bat­tery is more or less on the cost level that we have for a diesel en­gine with all the things that you will need in the fu­ture to clean ev­ery­thing. If you com­bine that, with a diesel, gear­box and all the after-treat­ment that you need in 2020, that is just the cost of the bat­tery.

“So you have to have all the clear con­tracts for 10 or 15 years with many dif­fer­ent sup­pli­ers. This is what we did. We are com­mit­ted to num­bers of tonnes and we’ve al­ready done this with dif­fer­ent sup­pli­ers. The bat­tery sys­tem and the con­trollers, we do this.

“We only buy the cells and we have dif­fer­ent sup­pli­ers be­cause we can­not de­pend on just one for a mil­lion cars.

“If there is any prob­lem, or the sup­plier has a new idea of what the cell should cost, we have no chance.”

The lead­ing car maker in China, VW has main­tained a close re­la­tion­ship with the coun­try’s reg­u­la­tors, with its joint-ven­ture even con­vinc­ing the gov­ern­ment to change its elec­tri­fi­ca­tion rules from the ini­tial all-Chi­nese pro­pos­als.

“We think it’s for sure that China will be the lead mar­ket for elec­tric cars. We have a mar­ket share of 14% in China and we are by far the mar­ket leader. The se­cond is GM [Gen­eral Mo­tors] with about 7%,” Diess says.

“Only to keep that mar­ket share, we [the Volkswagen brand] need 600,000 fully elec­tric cars by 2025, just to sell the vol­umes we have now, just to com­ply with the leg­is­la­tion that is be­ing im­ple­mented.

“So we have to do it. We have to do 600,000 BEVs. And they will be sold be­cause China will make sure they will be sold. If you then open up that dis­cus­sion to the Volkswagen Group, adding Skoda and Audi, we need a mil­lion elec­tric cars by 2025, just in China.”

Diess has planned that the mil­lion Chi­nese-mar­ket BEVs a year will an­chor Volkswagen’s elec­tric push glob­ally, pro­vid­ing the com­pany with scale, cash flow and a strong ne­go­ti­at­ing po­si­tion with bat­tery sup­pli­ers.

“China is our strate­gic ad­van­tage. We are so strong in China that we have to bring elec­tric cars faster to vol­ume than any­body else, so we could give com­mit­ments to our sup­pli­ers, which far ex­ceed those of our com­peti­tors.

“So we get bat­tery prices

CHINA IS OUR STRATE­GIC AD­VAN­TAGE. WE ARE SO STRONG THERE WE HAVE TO BRING ELEC­TRIC CARS FASTER TO VOL­UME THAN ANY­BODY ELSE

oth­ers can’t and we think we have a bril­liant pack­age and that is why we be­lieve that we can stop Tesla,” says Diess.

“The MEB (elec­tric car ar­chi­tec­ture) cars will not only be elec­tric cars, but in con­nec­tiv­ity, dif­fer­ent elec­tronic ar­chi­tec­ture with three do­main com­put­ers in the car and over the air up­dates,” he says.

“With that pack­age we think we will stop Tesla world­wide, be­cause we are faster in scal­ing and we are faster in ramp­ing up on three con­ti­nents and we think we can keep up the pace in the de­vel­op­ment in­def­i­nitely.”

It has five new BEVs planned for China from its new MEB elec­tric-car ar­chi­tec­ture, start­ing with the en­try-level ID, then two SUVs and one sedan in two dif­fer­ent sizes.

“This gives us huge economies of scale, with the same tech­nol­ogy start­ing in China and Europe and then mov­ing to the US

“It will be tough be­cause Tesla is ter­ri­bly fast in do­ing things, also up­dat­ing the ar­chi­tec­ture is good, but our strengths are run­ning global plat­forms, bat­tery sup­ply and a strong­hold in China.”

Oddly, Diess doesn’t cite BMW as a key BEV com­peti­tor, in spite of its ded­i­cated i brand and his own history as BMW’s for­mer di­rec­tor of de­vel­op­ment. Nor does he cite GM, which is the se­cond-big­gest car maker in China.

“I think Elon [Musk] is much more ad­vanced in the con­nected world than BMW and GM is not as com­mit­ted to China as we are. GM is still think­ing about one brand or the other.

“You al­ways look at the car re­gard­ing the driv­e­train. Tesla’s is only OK, and GM’s driv­e­train is OK,” he says.

“But when it comes down to the ar­chi­tec­ture of the car, from the as­sis­tance sys­tems in the car, Elon will de­velop much faster than the com­peti­tors. He has more cars on the road, he does faster up­dates and he de­vel­ops very quickly.”

The auto in­dus­try is def­i­nitely gear­ing up for ma­jor change, but as the re­al­ity of it all be­gins to hit home, it is clear that it is not go­ing to be as straight­for­ward as the PR state­ments of many gov­ern­ments make out.

Volkswagen CEO Her­bert Diess warns that chang­ing the world’s ve­hi­cles to elec­tric is go­ing to be dif­fi­cult and very ex­pen­sive.

Left: Bat­tery tech­nol­ogy such as this in the VW e-Golf is ad­vanc­ing rapidly, but so are the cost pro­jec­tions. Be­low: Volkswagen is tar­get­ing Tesla as its real com­peti­tor in the elec­tric ve­hi­cle mar­ket.

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