At the final expansion stage of the venture, it will be able to supply raw materials for 160 gigawatt hours’ worth of EV batteries, VW China 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.
VW'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.
"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 percent cost reduction on each battery."
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.
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.
VW'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 JV in Turkey.
On Saturday, the CEO 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 automakers including Tesla, told Reuters on Monday that it had raised prices for some battery products due to rising raw material costs.