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Tesla faces race with Volkswagen as German car giant targets battery costs and new gigafactories

The race to dominate the electric-vehicle industry may be getting tighter as Volkswagen, the German automobile giant and looming Tesla rival, revealed plans on Monday to reduce the cost of batteries and operate a wide-ranging charging network.

In its first-ever “Power Day,” reminiscent of electric-car maker Tesla’s
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much-hyped “Battery Day,” the German group that owns the Volkswagen, Audi and Porsche brands said it would rely on six gigafactories in Europe to secure supplies as the industry faces a looming shortage.

Shares in Volkswagen Group
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VWAGY,
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surged about 3% on Monday as the company’s top executives outlined a roadmap for technological expansion.

Electric vehicles have become the Wolfsburg, Germany, company’s “core business,” said Herbert Diess, the chair of the group’s board of management, and its new plans come as the battle to dominate the fast-growing electric-vehicle space heats up. 

Also read: Forget Nio and XPeng. This company and Tesla will be the top two electric-vehicle plays by 2025, says UBS.

According to analysts at UBS, EVs could achieve 100% penetration of the automobile market by 2040. Over the next few years, the Swiss bank projects that Volkswagen and Tesla will emerge as the market leaders, with the German company expected to catch up with Tesla in terms of total volume of electric vehicles sold as soon as next year.

Volkswagen ousted Tesla from its top rank in the European EV market in 2020 and now has a 20% to 25% market share in this key region. Europe is the world’s second largest electric-vehicle market after China, which is home to domestic EV manufacturers including Nio
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,
XPeng
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and BYD
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.

As car companies scramble in a sectorwide pivot to electric mobility, UBS said it expects that the supply of battery cells required to feed demand will face “regional tightness this year and global shortages by 2025.”

To secure the batteries needed for expansion, Volskwagen said it will rely on six gigafactories by 2030. The first factories will be in the Swedish cities of Salzgitter and Skellefteå, where Volkswagen is constructing a factory with partner Northvolt.

Read more: Volkswagen and Goldman Sachs–backed Northvolt snaps up Silicon Valley’s Cuberg as electric-vehicle battery race heats up

Northvolt said on Monday that it had received a $14 billion order from Volkswagen for premium battery cells. The German group also increased its ownership stake in the Swedish company, founded by a former Tesla employee with backers including Goldman Sachs
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and Spotify
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Chief Executive Daniel Ek.

In addition, Volkswagen said it will look to drive down the cost of its batteries — the key factor in driving down the total cost of vehicles — by up to 50% over the next decade.

Cost savings in some form will be seen from 2023 onward, Volkswagen said, when the group plans to launch a new, unified battery cell that will be installed in 80% of its EVs by 2030. 

“We aim to reduce the cost and complexity of the battery and at the same time increase its range and performance,” said Thomas Schmall, a member of Volkswagen’s technology board and the head of its technology road map. “This will finally make e-mobility affordable and the dominant drive technology.”

Plus: Buy these 3 battery stocks to play the electric-vehicle party, but stay away from this company, says UBS

To support the widespread consumer adoption of electric vehicles, Volkswagen plans to increase the European vehicle-charging network fivefold by 2025. Within the next few years, the company aims to operate 18,000 public fast-charging points, including 8,000 in partnership with oil major BP
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Volkswagen will build another 3,500 charging points in North America by the end of 2021 through its U.S. subsidiary, Electrify America, as well as 17,000 charging points in China by 2025 through a joint venture.

Automotive analyst Matthias Schmidt told MarketWatch that “giant” manufacturers like Volkswagen “are slowly awakening and starting to demonstrate that size matters when it comes to an electric future [that] regulation is forcing them into.” 

More: Tesla is in decline, SUVs are king, and more insights from this key electric-vehicle market

European car makers are being pushed to manufacture more electric vehicles by the threat of hundreds of millions of euros in fines from the European Union over binding fleet emissions targets. 

The race to transition toward electric mobility is also supported from the demand side, with many European governments offering thousands of dollars in tax breaks and subsidies for consumers to choose electric vehicles.

“VW announces a large cost advantage from scaling up production, deciding to vertically integrate in helping cut BEV costs on the road to price parity, critical once the subsidy scaffolding is slowly removed,” said Schmidt, who is also the publisher of European Electric Car Report.



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