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VW board of directors on possible IPO of the battery business: "We are not ruling anything out initially"

In an interview, Thomas Schmall talks about a conceivable IPO of the new battery division - and the entry into the raw materials business.

Volkswagen is considering an IPO for its new battery division. "We are not ruling anything out initially - at least for the cell business," said Chief Technology Officer Thomas Schmall in an interview with Handelsblatt. "A single cell plant could not be listed on disallowed, the whole thing has to be summarized at a higher level." The Wolfsburg-based car company wants to build technology partnerships and is also looking for external investors."The construction of cell plants is extremely expensive," emphasized Schmall. By the year 2030, Volkswagen and its partners want to build six new gigafactories for cell production in Europe alone. According to Schmall, that's enough to equip more than five million cars with batteries. The group may need additional cell factories for its Traton truck division. With the six gigafactories, we have so far covered the need for cars. "Volkswagen is also preparing to enter the business with raw materials that are required for cell production. “We will also have to go in this direction - we are looking at the entire process chain from the mine to recycling. We have to get actively involved in the raw materials business, ”emphasized Schmall. In cell production, raw materials would have a cost share of around 80 percent. "We at Volkswagen want to control the driver's seat and the operational business with the new factories," continues Schmall.
"Electromobility creates jobs," added the Group Board of Management. In VW's German engine and transmission factories, the number of jobs will remain roughly constant until 2025 despite the switch to electric drives. Around 21,000 people currently work there.
The VW Group has high hopes for the development of a new generation of solid-state cells that the Wolfsburg-based company is operating with its US partner Quantumscape. Solid cells should significantly increase the range of electric cars in the future. "We assume that we will see the first pilot systems for series production in 2025 or 2026," said Schmall.

Mr. Schmall, can and must you draw lessons from the crises in the supply of chips? How do you secure battery production?
The situation is somewhat comparable. The new electrical world is also changing the structure of purchasing, our cooperation with suppliers. So far we have mainly obtained our parts from suppliers who are the first in line, for example from the big players in the industry. In the battery field, however, we now have to go deeper into the supply chain, in other words to the upstream suppliers of the major suppliers. The decisive factor in battery cells are the raw material costs, their share is around 80 percent. So we have to take care of the raw materials right now.

Do the big cell suppliers from Asia put up with that? A manufacturer like VW intervenes in their business.
We have to find a “collaboration model” with these big manufacturers that gives us enough leeway. We want to manufacture cells ourselves, but at the same time want to obtain cells from outside. If we master the production processes ourselves, we become an integral part of the upstream raw material chain. And we are making ourselves less dependent on the big cell suppliers. That is the basic idea that guides us.

Is it really that easy? How do you win over the cell companies?
The size of the Volkswagen Group helps us here. With our twelve brands and ten million vehicles annually, we can present ourselves more strongly. In addition, the market for batteries is growing so large that it creates additional space for a car manufacturer like Volkswagen. For Europe alone we need six new gigafactories by 2030, for the entire industry there are around 30 factories. From now on, three new cell factories will have to be built every year.

How big should VW's own share in cell production be?It won't be 100 percent, but it should be more than 20 percent. We also have to shorten our own learning curve, otherwise the construction of the plants will take too long. That is why we want to build technology partnerships. In addition, we have to look for external investors, the construction of cell plants is extremely expensive. Our CEO recently said that the battery business could also be listed on disallowed.

Completely combined in a new group subsidiary?
In order to really find the best solution, we don't rule anything out at first - at least for the cell business. All of this will be so big and so crucial to our future viability that you have to think very carefully about how to organize it economically.

Is an IPO realistic? The structure of your partners will be very heterogeneous. You also talk to energy companies. Can you get all of these partners under one roof?
A single cell plant could not be listed on disallowed, the whole thing has to be summarized at a higher level. The real value of our future battery business comes from the know-how that lies behind it. And we're working very hard on that. Our “Center of Excellence” for battery cell development in Salzgitter already has 500 technicians by the end of the year, and we will soon double this number. With this we build up our own real development competence.

What training do these developers bring with them?
There are of course a particularly large number of chemists. To do this, we need a strong team for process engineering. It is clear that there is no large pool of experienced professionals when it comes to new technologies. It's a tight market. We are also still experiencing real quantum leaps in technological development; many things will change very fundamentally. This also puts us at greater risk - which, as a car manufacturer, is usually left to the suppliers.

So, for example, Bosch or Continental. Do you still see a way for the major German automotive suppliers to get involved in cell technology?
I cannot speak for my colleagues. Just one point: This business requires huge investments, and at the same time the suppliers have to acquire customers, i.e. have secure sales channels.

Let's go back to the raw materials: Will you, as a VW Group, conclude specific supply contracts with lithium or cobalt producers?
Our Swedish partner Northvolt has of course already done that for itself. We will also have to go in this direction - we are looking at the entire process chain from the mine to recycling. We have to get actively involved in the raw materials business.

Would you take over this supply of raw materials for all planned cell plants? So also where you will cooperate with partners?
If the basic logic is that we do everything under one roof and manage the planned factories uniformly, the answer is yes. We want to turn the battery business decisively. We at Volkswagen want to control the driver's seat and the operational business with the new factories. This also ensures that we can introduce the announced standard cell across all Group brands.

What does "unit cell" mean?
The external dimensions will be the same. But we need a different performance of the cells, a little stronger or a little weaker in performance. We achieve this through the inner workings of the battery cell - that is, through what chemistry we pack into the cell. We can then equip around 80 percent of all Group models with this standard cell. For the smaller rest - for example in the sporty high-performance area - there will be special solutions, think of Porsche or Lamborghini.

Why are energy companies like Iberdrola from Spain potential partners for you in the construction of the cell plants?
In this new world, it is not just the collaboration within a company like Volkswagen that is changing. The boundaries between the classic industrial sectors are also blurring, as the example of the energy industry and the automobile show. Iberdrola has made a major switch to sustainable energy production. What does this company need? If more and more solar and wind power is being produced, an energy company needs a lot of intermediate storage. In the future, these will be available as batteries in electric cars or as additional large-scale storage devices - both with the same cell chemistry, which ensures synergies in production. And the e-vehicle will become an integrated part of the energy system in the future - as a mobile storage device and with the option of bidirectional charging.

What makes you so confident that you will be able to standardize the cells?
If you focus clearly, you can do it. We also talk to other colleagues from the industry every now and then - and we hear the same topics everywhere. All automakers are now facing these challenges. We need this standard cell because we can use it to significantly reduce costs.

So far you have not given a specific number of how much you want to spend on your planned six gigafactory factories. Estimates amount to two to three billion euros per factory. Do you comment on that now?
I can't comment on that because it will change decisively in the future. We expect further development progress, which will significantly reduce the overall costs. The entire manufacturing process will be simpler, and we will also be able to reduce the space requirement compared to today's standards. The capacity can then be quickly doubled in the same area.

They are planning to build six gigafactories with an output of 40 gigawatt hours each. Is that enough for a good four million cars?
A little more, a good five million is more realistic. Because of the European Green Deal, we need an electrical share of up to 70 percent in the core market of Europe by 2030. But in the end it depends on the customer how quickly this development will take place. People have to want to buy the new electric cars. But maybe everything is going a lot faster than we think today.

The Volkswagen truck subsidiary Traton is now also almost exclusively committed to battery drives. So the group’s cell requirements will once again grow significantly, right?
That's right, that comes with it. With the six gigafactories, we have so far covered the need for cars. Fortunately, there are synergies with truck cells that we want to use in the future. There are many parallels in cell chemistry. It would therefore be fatal if we went completely different ways with the truck cells.

Could it be that the group will then need two additional cell plants?
That is quite possible, we will see it. But now we are first planning with the six large factories, that is the right foundation. The construction of further factories is also not absolutely necessary. The six factories could also be expanded to meet future trucking needs.

Of the locations for the six factories, two are clear, namely in Germany and Sweden. Does Spain have the best cards after that?
That also depends on the EU funding policy. The starting conditions are significantly worse for western European countries than in the east. According to the funding policy, we would only have to go to Eastern Europe, although a cell factory for Western Europe, for example in Spain, would be very useful. The Spanish government has now submitted its national funding framework for approval in Brussels, so let's wait and see. A decision should be made by the third quarter at the latest.

But Eastern Europe will definitely get a factory?
We're not quite ready with the planning yet. This can be the Czech Republic, Hungary, Poland or another location. I can't say anything about the possible locations five and six today. In any case, we sense a very strong interest everywhere in Europe. We barely manage to process the inquiries from local business development agencies and ministries. Everyone wants to be part of the race for this future technology.

We have not yet talked about employment in your component factories. So far there has been an expectation that electric mobility will destroy jobs.Electromobility creates jobs - contrary to all fears. In our gear and motor plants in Lower Saxony and Hesse, around 4,000 of a good 21,000 employees are already working in the production of electrical components, i.e. almost 20 percent. The proportion will double to around 40 percent by 2025, with an approximately constant number of employees. So there is no reason to fear electromobility.

Can you explain this using specific examples?
Take our engine plant in Salzgitter, for example. Where diesel engines used to be assembled, there is now a system on which components for electric motors are assembled. Salzgitter will also be our cell production center. In Braunschweig we have stopped the production of plastic parts with 600 employees. 650 colleagues are now producing battery systems in the same factory. They turn the battery cells into complete battery sets that are installed in the cars. The value-added share of the Volkswagen components division in the electric car has increased from 30 to 40 percent, and we are creating new jobs with it.

Where does Volkswagen stand in terms of transformation compared to the competition?
The pressure to transform and the rapid switch to electromobility, all of this together has achieved a great deal in the Group. I would say that we are two to three years ahead of the competition because we pushed this issue a lot. I also take off my hat to our works council, which has supported the entire change.

One more example is missing: What will happen to the gigantic transmission plant in Kassel, which would actually have no future without internal combustion engines?
The future there is assured, we will be producing one million electric drives a year in Kassel. Probably the largest manufacturer of electric machines in Europe is created. The Group's central development competence for electric drives is now based in Kassel. The team there made the change. This change also stands for a cultural change: in the past, a location usually only worked for itself. Kassel now has the development expertise in electric drives for the entire group, so the location has become much more important.

You still have engine plants in Hungary and Poland. What is happening there?
E-drives can also be manufactured in Györ in Hungary. The capacity in Kassel will certainly not be sufficient in the long term, we have to increase the volume bit by bit. There is also a vehicle factory nearby, so something is still possible. There are other approaches in Poland, why not a cell plant as well? We think about each location and develop a concrete, reliable plan.

Volkswagen has a significant stake in Quantumscape, a developer of the so-called solid-state cell. So do you believe in this concept?
Yeah, sure. The solid cell is the next technological step, with less weight, more range and shorter charging times. A real quantum leap to what we know today as a battery. For the competition, it will be decisive which car manufacturer can use the solid-state cell first. We assume that we will see the first pilot systems for series production in 2025 or 2026.

Mr. Schmall, thank you very much for the interview.

VW-Vorstand Thomas Schmall: VW-Batteriegeschäft-IPO denkbar (handelsblatt.com)