China may be the first country where Volkswagen Group could invest billions in one or more plants to manufacture electric-vehicle batteries, a source close to senior management said, citing the Chinese government¡¯s determined support for EVs.

 

Volkswagen is overhauling its long-term strategy, and a key factor, according to CEO Matthias Mueller, is an "electrification initiative second to none in the industry" that involves the launch of 30 fully electric models by 2025.

 

The German automaker anticipates it will sell 2 million to 3 million battery-electric cars and plug-in hybrids a year at that point, after previously forecasting annual sales of 1 million units. 

 

Mueller believes one-third of the group's entire fleet of new cars will be electrified by 2030. In order to reach that target, he said, VW is facing a massive challenge on the procurement side.

 

Whereas current global automotive cell capacity is estimated at around 27 gigawatt hours of supply for the entire industry, VW believes it alone will need the equivalent of 150 GWh just to power its own fleet. 

 

"That is roughly 10 battery plants, each requiring investments of 2 billion euros (15 billion yuan), so that's 20 billion euros in total," the source said.

 

How much of that investment would come from Volkswagen directly and how much might come from suppliers remains a matter under discussion, he said, as the company will need most of the rest of this year to finalize the new strategic roadmap.

 

When asked where all these plants might be built, the person responded, "China is likely one of the first, since we think electro-mobility will catch on there as a trend much sooner given the government's relentless push."

 

China offers another major advantage. If one or both of Volkswagen's Chinese partners builds a plant for battery cells and packs, VW would only have to finance half the funds, with the other half coming from Shanghai Automotive Industry Corp. or China FAW Group Corp.

 

China's government hopes that by electrifying cars in the country, it can alleviate the smog and pollution in city centers. Vehicles that can operate on electricity for at least 50 km can be deemed "New Energy Vehicles" and are exempt from the limits now in place for license plate allocations in several major cities.

 

EVs and plug-in hybrids also benefit from various financial incentives, although the bulk of the subsidies are only available on vehicles manufactured domestically, disqualifying models such as the Tesla Model S.

 

Critics argue however that this will simply shift them from the metropolitan areas out to rural areas. Moreover, the country's reliance on unwashed coal, which has not been treated to remove impurities, means that carbon emissions and pollution may even increase.