The reality of powering the electric future

A move 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 fuel-cell 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 €3.3-trillion. 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 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.

This article was originally published by the Business Day.You can view the original article here.