{"id":26317,"date":"2017-11-15T22:45:29","date_gmt":"2017-11-16T03:45:29","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/volkswagen-s-new-electric-roadmap-good-for-climate\/"},"modified":"2017-11-15T22:52:12","modified_gmt":"2017-11-16T03:52:12","slug":"volkswagen-s-new-electric-strategy","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/volkswagen-s-new-electric-strategy\/","title":{"rendered":"Volkswagen\u2019 s New Electric Strategy"},"content":{"rendered":"

On September 11, 2017 Volkswagen Group (VW) announced its new strategy \u201cRoadmap E\u201d, which revealed plans to sell one million electric vehicles (EVs) per year by 2025. [1] Details include 80 new EV models by 2025 and at least one electrified version for each of the 300+ models across all vehicle classes worldwide by 2030. It is certainly not a coincidence that the new strategy came shortly after the emissions scandala<\/sup> that broke in 2015 and had significant consequences for the company. Now VW sets again ambitious goals, this time to become the world market leader in electric mobility.<\/p>\n

Climate change is the main force behind powertrain electrification. At the latest since the Toyota Priusb<\/sup> in 1997, most of the car manufacturers have begun working on new technologies, such as batteries. During the last two decades, governments worldwide have also increased the pressure by setting lower carbon emission rates. Batteries have become a key technology for EVs, zeroing the local tailpipe emissions. But companies have quickly realized that a true impact could only be made globally, because environmental advantages of an EV depend also on emissions related to the production steps of a lithium-ion battery. [2] Therefore companies emphasize EV life-cycle assessments, leading to a new challenge for the car battery supply chain to minimize its carbon footprint.<\/p>\n

The production of battery systems includes energy-intensive steps, like mining, material processing, assembly, and transportation. [3] Studies show that energy consumption and greenhouse gases (GHG) emission to produce battery-packs are higher than those for conventional components. Especially the choice of location and the available electricity-mix used in production play a significant role in GHG emissions per produced battery capacity. In a study conducted on behalf of the German Environment Agency, a battery plant in Germany is estimated to increase GHG emissions by 50% due to relatively high coal and natural gas shares in electricity-mix. [4]<\/p>\n

By announcing its intentions to sell millions of EVs, VW has also committed to increase battery manufacturing capacity significantly. By 2025, according to Ulrich Eichhorn, Head of R&D, the company will need an annual capacity of around 200 gigawatt-hours for lithium-ion batteries. [5] As a reference, Tesla\u2019s for-2018-planned Gigafactory in Nevada is designed for 35 gigawatt-hours. [6] He also adds that the whole sector might require 40 such Gigafactories in order to avoid a massive scantiness. But how is VW also dealing with the abovementioned environmental concerns?<\/p>\n

According to some recent media articles, the management has three main goals. Firstly, in the short-term, the company aims for partnerships with large Asian battery providers to manufacture in Europe. [7] This option is the most pragmatic, especially when the tight schedule until 2025, high efficiency requirements in production, and potential cost benefits are considered. South Korean LG will already open Europe\u2019s biggest car battery factory next year in Poland. [8] Secondly, in the medium-term, VW plans its own battery plant by replacing one of its largest engine plants in Germany. [9] By doing so, the company wants to gain more control on this expensive key component. Finally, the management wants to secure supplier partnerships by building joint-ventures in China, where most of the precious metals necessary for battery production are mined. However, in a recent attempt to secure long-term cobalt supply, which is an essential resource for battery production, VW has been unsuccessful in negotiations and was called \u201carrogant\u201d by local suppliers. [10]<\/p>\n

Obviously, a new approach in designing the battery supply chain is necessary. Instead of treating new suppliers as traditional suppliers with low margins, my recommendation for VW management is to consider the extremely high worldwide demand for metals, like lithium and cobalt. In addition to large automakers, new players like Tesla or other startups are also pursuing deals with raw material suppliers. VW should develop more attractive offers to secure long-term deals. In terms of battery manufacturing plants, I think the management needs to be also quicker in determining locations and building at least one manufacturing center, which uses 100% renewable energy. This would be not only an investment for in-house production of a key component but also a significant signal regarding the company\u2019s vision for innovation and sustainability.<\/p>\n

There are also some risks in VW\u2019s new e-strategy. The big question remaining is whether the company will be able to sell millions of EVs only a few years after the emissions scandal. Should VW do more to repair its damaged brand image first, and then invest billions on supply chain? How about the other side of the supply chain, the charging stations? Is it the right strategy to invest even more to build a charging infrastructure, from which other automakers would also benefit? Certain is that VW needs to make critical decisions soon.<\/p>\n

(Word Count: 787)<\/p>\n

a<\/sup> The Volkswagen Emissions Scandal (also called “emissionsgate” or “dieselgate”), see https:\/\/en.wikipedia.org\/wiki\/Volkswagen_emissions_scandal.
\nb<\/sup> The world’s first mass-produced gasoline-electric hybrid car from Toyota.<\/p>\n

Sources:<\/em><\/p>\n

[1] “The Volkswagen Group launches the most comprehensive electrification initiative in the automotive industry with ‘Roadmap E’,” press release, September 11, 2017, on Volkswagen AG website,\u00a0https:\/\/www.volkswagenag.com\/en\/news\/2017\/09\/Roadmap_E.html, accessed November 2017.<\/p>\n

[2] Jens F. Peters et al., “The environmental impact of Li-Ion batteries and the role of key parameters \u2013 A review,” Renewable and Sustainable Energy Reviews<\/em>, 67,\u00a0 (2017): 506, Elsevier via ScienceDirect, accessed November 2017.<\/p>\n

[3] Linda Ager-Wick Ellingsen et al., “Life Cycle Assessment of a Lithium-Ion Battery Vehicle Pack,” Journal of Industrial Ecology<\/em>, 18, no. 1, (2013): 124, Wiley Online Library, accessed November 2017.<\/p>\n

[4] Hinrich Helms et al., “Weiterentwicklung und vertiefte Analyse der Umweltbilanz von Elektrofahrzeugen,” Umweltbundesamt, April 2016, https:\/\/www.umweltbundesamt.de\/sites\/default\/files\/medien\/378\/publikationen\/texte_27_2016_umweltbilanz_von_elektrofahrzeugen.pdf, accessed November 2017.<\/p>\n

[5] Christiaan Hetzner, “Industry needs 40 gigafactories, VW says; Company sees huge shortage of batteries by ’25,” Automotive News<\/em>, July 10, 2017, via Factiva, accessed November 2017.<\/p>\n

[6] Tesla, “Tesla Gigafactory,” https:\/\/www.tesla.com\/gigafactory, accessed November 2017.<\/p>\n

[7] “IAA; VW dringt auf europaweiten Bund f\u00fcr Batteriezelle,” Handelsblatt<\/em>, September 13, 2017, via Factiva, accessed November 2017.<\/p>\n

[8] Marcin Goettig, “LG to open Europe’s biggest car battery factory next year,” Reuters<\/em>, October 12, 2017, via Factiva, accessed November 2017.<\/p>\n

[9] Heiko Lossie, “Akkus sollen Jobs sichern; VW pr\u00fcft Batterie-Produktion in Salzgitter,” Neue Presse<\/em>, May 28, 2016, via Factiva, accessed November 2017.<\/p>\n

[10] Henry Sanderson, Neil Hume, “Cobalt traders dismiss VW’s low-price bid to grab supply; Carmaker accused of arrogance; Electric car push strains market,” Financial Times<\/em>, October 16, 2017, via Factiva, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

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