Volkswagen Budget Cuts Force Battery Unit to Seek External Funds
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Volkswagen AG’s battery business is being forced to seek external financing after the German carmaker cut its five-year spending plan, creating a mid-term squeeze for the unit.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Volkswagen AG’s battery business is being forced to seek external financing after the German carmaker cut its five-year spending plan, creating a mid-term squeeze for the unit.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Third-party funding “is an option that we are looking into more closely than before,” PowerCo Chief Executive Officer Frank Blome told reporters at the unit’s plant in Salzgitter, Germany, on Tuesday. Bank loans, external investors and a potential public offering are all options under consideration after the unit’s budget was reduced, he said.Volkswagen management is in the midst of deciding the details of its five-year planning round, which has been reduced to €160 billion ($188 billion) from €180 billion two years ago. The carmaker annually decides on how to divide up spending between factories, vehicle models and new technologies such as batteries, software and EVs. The plan is expected to be unveiled in March.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Related: VW Weighs Producing Range Extender Cars for US, EuropePowerCo doesn’t plan to halt construction at its three plants in Germany, Spain and Canada, but a solution for mid-term financing is needed, Blome said, adding that less investment is needed given the slower-than-expected uptake of EVs.“It’s true that things aren’t progressing quite as quickly as originally planned,” Blome said. PowerCo on Wednesday commissioned the Salzgitter gigafactory, Volkswagen’s first battery-cell manufacturing site. The automaker is aiming to regain control of a key part of the electric-vehicle supply chain as Europe’s shift away from gasoline-powered vehicles loses steam. The cells will debut in EVs made by Volkswagen, Škoda and the Cupra brand next year after completing final road tests.Germany’s higher costs will make the Salzgitter plant primarily a lead example for new batteries, establishing operations blueprints for the other two planned factories in Spain and Canada. Those will start serial production in 2027 and 2028, respectively.The company has halved its capacity target for the initial ramp-up of the Salzgitter plant to 20 gigawatt hours a year. While it still has a long-term goal of producing batteries with a capacity of 200 gigawatt hours overall in its three plants, it hasn’t provided more details. The three plants together would have a maximum capacity of 190 gigawatt hours if built out completely. A company spokesperson said PowerCo would look into how to get to the 200 gigawatt-hour target when it gets closer to that mark, but it’s “still very far“ from the goal.The Spanish factory could be able to produce a maximum of 60 gigawatt hours, while the Canadian one’s capacity could be as much as 90 gigawatt hours. The Salzgitter plant will top out at 40 gigawatt hours.PowerCo initially set out to supply about half of Volkswagen’s battery needs to help the automaker reduce its dependence on Chinese suppliers. The EU decided earlier this week to pull back from a combustion engine ban, further clouding the outlook for EVs. Carmakers, including VW, have pushed for greater flexibility, but the softened stance risks slowing development and widening the technological gap with competitors.PowerCo‘s expansion could be further threatened by a potential slowdown in the continent‘s rollout of EV’s due to the EU’s move on combustion engines. The battery-maker has said it can expand production in 20-gigawatt increments, but stressed that this depends on market conditions.Chinese cell makers continue to offer large quantities of low-cost batteries, making it harder for European producers such as VW to justify large investments. PowerCo’s expected losses — €1.55 billion this year and nearly €900 million in 2026, as tracked by Bloomberg — illustrate how the unit remains far from breaking even.—With assistance from Monica Raymunt.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.