Volkswagen reveals the real cost of going electric

A move to fully electrified cars will cost customers more than three trillion euros for batteries alone, Volkswagen’s chief executive has cautioned.

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

However, Herbert Diess has warned that some carmakers could miss China’s target date for ending internal-combustion power because of a shortage of batteries and lithium.

China, which Dr Diess believes will lead the world towards electric cars, already has car makers working towards a target of 15 per cent electrification by 2025.

“If you think about 15 per cent of electric cars by 2025 (globally), we need between 60 and 100 gigafactories, with an investment for each one of 5 billion euros,” Dr Diess explained.

“Who is putting the money in? How long do they take to build? I think it (battery supply) will be a constraint.”

On the VW boss’ figures, moving to 100 per cent BEV would demand between 400 and 670 gigafactories around the world, at a cost of between $AUD3 $AUD4.9 trillion.

Both figures are far higher than the market capitalisation of every auto maker in the world combined.

Another potential problem is the supply of raw materials for complex battery systems, such as the crucial lithium for lithium-ion batteries. Toyota has bought up lithium mines in Bolivia, while Volkswagen has hedged its battery costs and supply lines with long-term deals spread across a number of suppliers.

“The cost of the battery is the most expensive part of the whole battery electric vehicle,” the Volkswagen brand’s director of development, Dr Frank Welsch, pointed 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, Volkswagen has long maintained a close relationship with China’s regulators, with its joint-venture there even convincing the government to change is 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 per cent in China and we are by far the market leader. The second is GM with about 7 per cent,” Dr Diess explained.

“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 ‘25, just in China.”

Dr Diess has believes the million Chinese-market BEVs a year will anchor Volkswagen’s electric push globally, providing it 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,” Dr Diess explained.

“The MEB 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.

“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.”

Volkswagen has five new BEVs planned for China from its new MEB electric-car architecture, starting with the entry-level I.D., 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 U.S.

“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, Dr 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 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.

“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 in the road, he does faster updates and he develops very quickly.”