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Volkswagen Owes Tesla An Apology

Industry News / Comments

Turns out building EVs is not easy, even if you’re a veteran automaker.

Volkswagen has been talking a big game about the upcoming onslaught of electric vehicles the company and its subsidiary brands, including Audi and Porsche, will supposedly have ready before too long. And though the Tesla doubters sat back and watched as the young EV-maker struggled to ramp up production capabilities to beat the auto giants to market, those very giants are now encountering problems of their own in the race to scale up EV production.

According to a report by Bloomberg, the biggest source of the production bottleneck is the battery. Volkswagen, which is currently in the process of getting the ID.3 out to paying customers, is now making big changes to its battery-purchasing plan after its main supplier said it would no longer be able to fulfill the automaker's orders.

Volkswagen's battery procurement plan is worth around €50 billion euros ($56 billion), and a large chunk of it was initially going to Samsung SDI in exchange for 20-gigawatt hours worth of batteries per year at some point in the future. Assuming Volkswagen's EVs will each have 100-kilowatt hour battery packs, that makes the 20-gigawatt hour supply good for about 200,000 vehicles.

However, sources told Bloomberg that "different views on production volume and schedule emerged during detailed negotiations," and that Samsung is now set to deliver only 5-gigawatt hours to Volkswagen per year. That means Volkswagen has only secured enough battery capacity for 50,000 EVs per year, enough to build only five times the amount of ID.3s that were preordered in the first 24 hours the deposits books were open.

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The problem comes into perspective when looking at the amount of battery capacity Volkswagen will eventually need. "VW ultimately needs 300-gigawatt hours of annual battery cell supply and without robust global multi-sourcing contracts this will be impossible," Evercore ISI analyst Arndt Ellinghorst said. "It's one thing talking up electric vehicle volume numbers, building the necessary value chain remains a major challenge."

The German automaker had originally split suppliers according to region, with Samsung SDI, LG Chem, and SK innovation covering European production, SK Innovation providing batteries to Volkswagen's North American EVs, and the Contemporary Amperex Technology company supplying China's electric VWs. "Samsung continues to be our battery cell supplier for Europe," VW affirmed in an emailed statement to Bloomberg. Given that Volkswagen is working towards solid-state batteries and that its subsidiary Audi is toying with hydrogen cars, it sounds like the company foresaw problems in the brewing war for the world's limited supply of batteries.