Volkswagen China joins with 2 firms to battle runaway costs for EV batteries

[SHANGHAI] Volkswagen Group China said on Monday it will form joint ventures with Huayou Cobalt and Tsingshan Group to secure nickel and cobalt supplies, in a bid to control electric vehicle battery costs at a time of surging raw material prices.

The three companies have signed memorandum of understandings for two joint ventures, the first among the three firms in Indonesia, where they will jointly invest their respective advantages and resources for battery raw materials production, Volkswagen said in a statement.

More than 10 per cent of the world's laterite nickel ore reserves are in Indonesia, noted the German carmaker. Volkswagen plans to set up six large battery factories in Europe and is spending billions of euros in an effort to overtake Tesla as the world's top EV seller by 2025.

Volkswagen's second joint venture will be formed with Huayou in China's south-western Guangxi region for the refining of nickel and cobalt sulfates, precursor and cathode material production, it said.

"The cooperation aims to achieve significant cost advantages, secure the raw material supply and achieve a transparent and sustainable supply chain," it said.

"The two partnerships target to contribute to the group's long-term target of a 30-50 per cent cost reduction on each battery."

Global nickel prices have surged almost 400 per cent this year due to the Ukraine crisis, as Russia is a major supplier, and its invasion of Ukraine and the subsequent imposition of sanctions on Moscow by the West lit a fire under already an hot market for nickel.

Prices on the London Metal Exchange (LME) got a further boost on Mar 8 when they doubled to US$100,000 per tonne in a matter of hours, after Tsingshan bought large amounts of nickel to reduce its short bets on the metal and its exposure to costly margin calls.

Prices have dropped sharply since then however, after the LME was forced to halt trading for a period and reopened with new trading limits.

Privately owned Tsingshan has become the world's top nickel producer, thanks to its development of a low-cost process to make the metal. It already has major investments in Indonesia, including other joint ventures with Huayou.

Volkswagen's move comes as rivals, from Tesla to BYD, are raising prices for EVs due to higher raw material costs. On Saturday, the chief executive of Chinese EV manufacturer Li Auto, Li Xiang, said on his official Weibo account that battery makers had increased prices at a rate he called "outrageous" in the second quarter, and warned that those EV makers that had not raised prices yet would likely have to soon.

Asked to comment on Li's remarks, Chinese battery maker CATL, which supplies major car makers including Tesla, told Reuters on Monday that it had raised prices for some battery products due to rising raw material costs.

REUTERS