Skip to main content
Sister Publication Links
  • Automotive News
  • Automobilwoche
  • Automotive News Canada
  • Automotive News China
Subscribe
  • Subscribe
  • Newsletters
  • Login
  • HOME
    • Latest news
    • Automakers
    • Suppliers
    • New Product
    • Environment/Emissions
    • Sales By Market
    • On The Move
    • Auto Shows
    • Munich Auto Show
    • Geneva Auto Show
    • Paris Auto Show
    • Beijing Auto Show
    • Shanghai Auto Show
  • Features
    • Long Read
    • Interview of the Month
    • Focus on Electrification
    • Focus on Technology
    • Segment Analysis
    • Cars & Concepts
    • Supplier Spotlight
    • Europe By The Numbers
  • Opinion
    • Blogs
    • Commentary
    • Guest columnists
  • Photos
    • Photo Galleries
    • Geneva Photo Gallery
    • Beijing Photo Gallery
    • Frankfurt Photo Gallery
    • Paris Photo Gallery
    • Shanghai Photo Gallery
  • Podcasts
  • Car Cutaways
  • EVENTS
    • ANE Congress
    • ANE Rising Stars
    • ANE Eurostars
  • More
    • Publishing Partners
    • Social Media
    • Contact Us
    • Media Kit
    • About Us
    • Capgemini: All or nothing: Why circular business models require a holistic approach
    • Capgemini: Invent Head on automotive takeaways from CES 2023
    • Capgemini: Securing the industry's future through a radical rethink
    • Capgemini: Succeeding with the automated driving journey through AI
    • Capgemini: The circular economy is spurring new thinking on EV batteries
    • Capgemini: Toyota and Capgemini leaders on how OEMs can handle industry changes and succeed
    • HEXAGON: Plugging into data is the only way to make winning EVs
    • TUV Rheinland: Ideas, services and certifications for smart mobility
    • TUV Rheinland: Testing of automated and autonomous vehicles on test tracks
    • Toyota Europe
    • UFI Filters
    • Facebook
    • Instagram
    • LinkedIn
    • Twitter
MENU
Breadcrumb
  1. Home
  2. Automakers
March 17, 2021 08:14 AM

VW's new battery strategy stuns Korean suppliers

Of particular concern to executives at LG and SK was Volkswagen's relative lack of consultation

Reuters
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    VW battery production Salzgitter web.jpg

    VW battery production is pictured in Salzgitter, Germany.

    SEOUL/BEIJING/FRANKFURT -- Days before Volkswagen Group held an event to announce a major ramp-up in its electric vehicle production, the automaker abruptly told its South Korean battery suppliers their current technology would be largely excluded from those plans.

    The decision by the world's second largest automaker to move the bulk of its cars to a different battery cell in two years came as a shock to LG Energy Solution and SK Innovation , three people with knowledge of the situation told Reuters.

    "It's not our everyday business routine to get such one-sided notice from a partner ... people seemed to be pretty alarmed," one of the sources said.

    VW's shift to a new unified prismatic battery, away from the pouch-style manufactured by LG and SK, is likely to be a massive blow given the pair have invested billions in pouch production sites in the United States, Europe and Asia.

    The shift also raised concerns among battery suppliers that the race by automakers to meet growing demand for EVs in a rapidly changing technological environment could leave them behind almost overnight.

    "Volkswagen's announcement is just the beginning of the competition in the EV market, signaling that huge investment will be made competitively in the future," said Lee Jae-il, an analyst at Eugene Investment & Securities.

    VW is under intense pressure to cut battery costs, strengthen its position in China, and better compete with Tesla. China's Contemporary Amperex Technology Co., which already supplies VW and Tesla, is making prismatic batteries, the technology favored for VW's future vehicles.

    Thomas Schmall, Volkswagen's board member in charge of technology, said this week the company would keep its current contracts, adding 80 percent of its post 2025 generation of EVs would use prismatic batteries. Schmall did not specify battery technology for the remaining 20 percent.

    Schmall said it would not be a big deal for battery suppliers to switch to production of prismatic cells, although analysts suggested doing so would require significant reinvestment and time to overhaul factories.

    SK, which had announced a contract in 2018 to supply Volkswagen with pouch batteries but had not yet started doing so, said it currently has no plans to produce prismatic batteries. It supplies pouch batteries to Hyundai Motor and its sister company Kia.

    LG, which makes prismatic batteries but only for smaller goods such as laptops, declined to comment on whether it would expand that production to EV batteries. Volkswagen was one of its biggest clients for pouch batteries, but it retains Tesla, General Motors and Hyundai Motor. It also builds cylindrical batteries for Tesla.

    Changing allegiances

    Of particular concern to executives at suppliers was VW's relative lack of consultation with LG and SK about the battery shift, a break with tradition from the industry strategies pioneered by Toyota decades ago.

    When LG told VW it would send an executive to Germany to discuss the potential battery switch, VW told LG not to, all three people with knowledge of the situation told Reuters. They declined to be identified because they are not authorized to speak to the media.

    "This is rare among automakers and suppliers which they have good relationship with," said Yale Zhang, head of the Shanghai-based consultancy Automotive Foresight. "Traditionally automakers invite core suppliers to discuss future technology before finalizing as they need to ensure supply."

    It comes just days after outgoing Panasonic Chief CEO Kazuhiro Tsuga told the Financial Times his company needed "to graduate from our one-legged approach of relying solely on Tesla." Panasonic lost its coveted decade-long position as Tesla's exclusive supplier last year when the automaker unveiled plans to begin developing its own batteries and add LG and CATL as purchasing partners.

    Two sources told Reuters SK and LG's situation was complicated by a U.S. legal battle between the bitter rivals that has threatened to disrupt Volkswagen's EV production at its Tennessee factory and left the automaker "very unhappy" with the pair.

    "Volkswagen warned South Korean battery makers early last year that Chinese battery makers would be beneficiaries of the legal disputes," one person told Reuters.

    China wins

    China, the world's biggest car market and a key battleground for EVs, is the winner in VW's shift from the lighter pouch batteries to the generally safer and easier to source prismatic batteries.

    As well as its deal with CATL, Volkswagen told Reuters it planned to source batteries from Wanxiang A123 and Guoxuan High-tech. A source close to Guoxuan told Reuters it anticipates striking a supply deal for lithium iron phosphate batteries in a year or more.

    Other China suppliers were likely, Volkswagen said, as it begins the roll-out of five models of its ID series of EVs in the country this year.

    "The Chinese have become very strong on a technological level which means the supply side is bigger," Volkswagen CEO Herbert Diess told Reuters, adding he believed the company remained a relevant customer for LG and Samsung SDI, which supplies prismatic batteries.

    "We actually need every cell, every bit of capacity that is available," Diess said. "But we will have a bigger say in terms of cell design."

    FOCUS ON ELECTRIFICATION NEWSLETTER: A monthly wrap-up of the latest electric vehicle news, including interviews and global EV sales data, delivered to your inbox.
    RECOMMENDED FOR YOU
    Renault's new small EV platform cuts weight, diversity and costs
    Recommended for You
    Renault CMF-B EV platform 2023
    Renault's new small EV platform cuts weight, diversity and costs
    CUPRA Formentor VZ5
    Europe's automakers reaped record profits in 2022
    Renault Nissan
    Nissan, Renault confident of finalizing alliance deal soon
    Sign up for free newsletters
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Get Free Newsletters

    Sign up and get the best of Automotive News Europe delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    SUBSCRIBE TODAY

    Get 24/7 access to in-depth, authoritative coverage of the auto industry from a global team of reporters and editors covering the news that’s vital to your business.

    SUBSCRIBE NOW
    Connect with Us
    • Twitter
    • Facebook
    • LinkedIn
    • Instagram

    Founded in 1996, Automotive News Europe is the preferred information source for decision-makers and opinion leaders operating in Europe.

    Contact Us

    1155 Gratiot Avenue
    Detroit MI  48207-2997
    Tel: +1 877-812-1584

    Email Us

    ISSN 2643-6590 (print)
    ISSN 2643-6604 (online)

     

    Resources
    • About us
    • Contact Us
    • Advertise with us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Awards
    • Rising Stars
    • Eurostars
    • Leading Women
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Automotive News Europe
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • HOME
      • Latest news
      • Automakers
      • Suppliers
      • New Product
      • Environment/Emissions
      • Sales By Market
      • On The Move
      • Auto Shows
        • Munich Auto Show
        • Geneva Auto Show
        • Paris Auto Show
        • Beijing Auto Show
        • Shanghai Auto Show
    • Features
      • Long Read
      • Interview of the Month
      • Focus on Electrification
      • Focus on Technology
      • Segment Analysis
      • Cars & Concepts
      • Supplier Spotlight
      • Europe By The Numbers
    • Opinion
      • Blogs
      • Commentary
      • Guest columnists
    • Photos
      • Photo Galleries
      • Geneva Photo Gallery
      • Beijing Photo Gallery
      • Frankfurt Photo Gallery
      • Paris Photo Gallery
      • Shanghai Photo Gallery
    • Podcasts
    • Car Cutaways
    • EVENTS
      • ANE Congress
      • ANE Rising Stars
      • ANE Eurostars
    • More
      • Publishing Partners
        • Capgemini: All or nothing: Why circular business models require a holistic approach
        • Capgemini: Invent Head on automotive takeaways from CES 2023
        • Capgemini: Securing the industry's future through a radical rethink
        • Capgemini: Succeeding with the automated driving journey through AI
        • Capgemini: The circular economy is spurring new thinking on EV batteries
        • Capgemini: Toyota and Capgemini leaders on how OEMs can handle industry changes and succeed
        • HEXAGON: Plugging into data is the only way to make winning EVs
        • TUV Rheinland: Ideas, services and certifications for smart mobility
        • TUV Rheinland: Testing of automated and autonomous vehicles on test tracks
        • Toyota Europe
        • UFI Filters
      • Social Media
        • Facebook
        • Instagram
        • LinkedIn
        • Twitter
      • Contact Us
      • Media Kit
      • About Us