Volkswagen’s PowerCo Is Taking Off

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Last year, Volkswagen started a new battery production company that would operate under the VW umbrella: PowerCo. Now, in March 2023, several announcements by the company show that it’s actually taking steps to become a serious player in the battery industry.

What’s PowerCo?

Before I get into the announcements that show Volkswagen’s making a serious effort, let’s review what PowerCo even is so that we can understand whether it’s making progress toward its goals.

Last year, Volkswagen (VW) revealed that it would establish a new company, PowerCo, that would oversee the group’s worldwide battery business. The new entity would manage operations throughout the battery value chain, in addition to cell production. Through strategic partnerships, PowerCo aims to invest over €20 billion toward business development before 2030, with the objective of surpassing €20 billion in annual sales and the creation of up to 20,000 jobs in Europe alone.

“Today we are not only laying a foundation stone but also marking a strategic milestone,” said Herbert Diess, CEO of Volkswagen AG. “The battery cell business is one of the cornerstones of our NEW AUTO strategy which will make Volkswagen a leading provider of the sustainable, software-driven mobility of tomorrow. Establishing our own cell factory is a megaproject in technical and economic terms. It shows that we are bringing the leading-edge technology of the future to Germany!”

The company’s purpose is overseeing global factory operations, enhancing the development of cell technology, vertically integrating the value chain, and supplying machinery and equipment to the factories. PowerCo plans to expand its offerings in the future, which may also include large energy storage systems for the power grid.

The first factory, and the headquarters for the company, are both in Salzgitter. After Salzgitter, the Valencia region was selected for the next cell factory, while three additional cell factories are expected to break ground in Europe, with locations currently under review. Outside of Europe, PowerCo has expressed interest in the likelihood of providing gigafactories in North America.

“In building our first in-house cell factory, we are consistently implementing our technology roadmap. PowerCo will become a global battery player,” said Thomas Schmall, Member of the Board of Management of Volkswagen AG responsible for Technology and Supervisory Board Chairman of PowerCo. “The company’s major strength will be vertical integration from raw materials and the cell right through to recycling. In future, we will handle all the relevant activities in-house and will gain a strategic competitive advantage in the race to take the lead in e-mobility. We have secured a top team for this great undertaking.”

Another big goal for PowerCo is standardization. VW announced that all vehicles, across all brands, will be moving to a unified battery cell design, built by PowerCo. PowerCo is committed to standardizing not only equipment, buildings, and infrastructure, but also products, processes, and IT, ensuring that factories are equipped with streamlined systems that facilitate swift production innovation as the need arises. Each facility will run exclusively on renewable electricity and will be constructed for closed-loop recycling, along with future-readiness.

PowerCo’s Recent Announcements

Two recent announcements from PowerCo show us that the company is making progress toward the goals described above (information from their first press release).

First off, Volkswagen has made it clear that PowerCo doesn’t intend to work alone. Controlling production and unifying design doesn’t mean that PowerCo doesn’t need suppliers and other partners to make all of this happen. In other words, vertical integration can’t be absolute.

That’s why it’s good news that the company has announced its first major partnership. PowerCo is pleased to announce that full regulatory approvals for its joint venture with Umicore, a recycled battery materials company, have been secured, following an announcement made in September 2022. This success enables the partners to focus on the preparatory stage of the large-scale industrial production of cathode active materials (CAM) and precursor materials (PCAM) in Europe.

Starting in 2025, PowerCo and Umicore’s joint venture will supply PowerCo’s European battery cell factories with critical materials necessary for production. Based in Brussels, the partnership will cater to a considerable proportion of PowerCo’s EU requirements and guarantee Umicore with access to a significant share of Europe’s EV cathode materials demand.

The joint venture is well positioned to fulfill its projected production target by the close of the decade, producing CAM and PCAM for a 160 GWh cell capacity per year, which is approximately equivalent to the annual production capacity required to energize 2.2 million full electric vehicles. As a result, the partners will significantly contribute to the environmental transition in mobility and the continued evolution of a sustainable and locally integrated European battery supply network.

Another big piece of news is that the company has kicked off construction of its second production facility in Spain.

In the presence of His Majesty King Felipe VI, Spain’s President Pedro Sánchez, and Ximo Puig, President of the Valencian Generalitat, PowerCo initiated construction of its second cell factory in the municipality of Valencia. The upcoming Gigafactory Valencia is scheduled to commence unified cell production in 2026 and is expected to provide jobs for over 3,000 people directly, with an additional 30,000 potential indirect roles created at partner and supplier locations across Spain, per a recent study.

PowerCo has selected three locations for its cell factories since its launch in July 2022, with two of them, Salzgitter and Valencia, already under construction, while the third one is in St. Thomas, Ontario, Canada.

“We are moving into the fast lane with PowerCo. We have just broken ground for PowerCo’s second gigafactory in Valencia, and are already making the next step with the announcement of another gigafactory in St. Thomas, Canada,” said Schmall. “Our objective is to make PowerCo a global player in the battery business and pave the way for better mobility with sustainably manufactured battery cells. The gigafactory Valencia is an important milestone in that.”

Gigafactory Valencia serves as a cornerstone of VW’s “Future: Fast Forward” program, a €10 billion investment effort introduced by Volkswagen Group in collaboration with PowerCo, Spanish affiliate SEAT S.A., and 49 co-funders. The initiative includes Volkswagen’s plans to electrify locations in Martorell and Pamplona as part of the PERTE initiative for electric and connected vehicles.

PowerCo manages Volkswagen Group’s global battery business, from raw material sourcing and development to the construction and operation of gigafactories. By 2030, PowerCo and its associates are projected to have annual revenue of more than €20 billion.

Is PowerCo Making The Goal?

PowerCo still has a long way to go toward getting enough battery production for the clean energy future, but these announcements seem to indicate a pretty solid start. They’ve managed to put the group’s battery efforts under one roof, and PowerCo is working to build up a global production capacity, with the second site breaking ground after less than a year (which is pretty fast by corporate standards).

If they can keep doing what they’re doing, they have a good shot at becoming an important player in the battery market.

Featured image provided by PowerCo.