Volkswagen Unveils Asian Ventures for EV Production

Volkswagen Unveils Asian Ventures for EV Production
A worker fixes a sign on a Volkswagen Golf car during a press tour in Zwickau, Germany in a file photo. (Jens Meyer/The Canadian Press/AP)

Volkswagen will form joint ventures with Huayou Cobalt and Tsingshan Group to secure nickel and cobalt supplies for electric vehicles in China.

The move is part of a 30 billion euro ($33 billion) push by the world's second-largest carmaker to build a network of battery cell factories and secure more direct access to vital raw materials that are needed to supply them.

Volkswagen, Huayou Cobalt, and Tsingshan have signed a memorandum of understanding for a joint venture in Indonesia, where more than 10 percent of the world's laterite nickel ore reserves are located, to focus on nickel and cobalt raw material production.

At the final expansion stage of the venture, it will be able to supply raw materials for 160 gigawatt-hours worth of electric vehicle batteries, Volkswagen China Group said in a statement.

This corresponds to an annual output of around 120,000 tons of nickel and 15,000 tons of cobalt, Huayou said in a separate filing to the Shanghai Stock Exchange.

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

Global nickel prices have surged almost 400 percent 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 an already hot market.

Prices on the London Metal Exchange got a further boost on March 8 when they doubled to $100,000 per ton 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.

Tsingshan company 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, and follows Ford's announcement last week spelling out plans for a nickel cell joint venture in Turkey.

In her remarks to the Republican forum on the U.S. departure from Afghanistan, distinguished fellow at the Institute for Energy Research Mary Hutzler expanded on the scale of U.S. dependence on China for minerals used in electric vehicles, solar panels, and similar technologies.

“Our reliance on China is about 80 percent for these minerals right now, where the high for us in 2001 on oil from the Middle East was 23 percent. We’re going to be four times as dependent on China as we were on the Middle East,” she said.

Hutzler has also previously highlighted China’s dominance in new lithium-ion battery factories. In a 2020 analysis, she noted that “of the 136 lithium-ion battery plants in the pipeline to 2029, 101 are based in China.”

A 2020 report (pdf) on lithium-ion batteries from Benchmark Mineral Intelligence (BMI) underscores the scale of Chinese investment in battery cathodes, including lithium and cobalt chemical supplies, as well as nickel and overall cathode supply.

BMI also drew attention to some of the environmental hazards of lithium-ion batteries.

“Against a backdrop of rising ESG concerns in mining investing, the environmental footprint of this supply chain has faced tough scrutiny,” the report reads, citing figures from Volkswagen that suggested production of the company’s battery-electric vehicles had almost double the carbon footprint of producing one of its diesel vehicles.

Reuters and Nathan Worcester contributed to this report.
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