New 'signal for Europe' as VW starts up battery production in Germany

Volkswagen has launched its own in-house battery cell production, with manufacturing officially beginning on Wednesday at the first plant operated by its battery subsidiary PowerCo.

Production began at the Salzgitter site, built on the grounds of Volkswagen's existing engine plant in the central German city.

Construction of the cell factory began in July 2022, and more than €1 billion ($1.1 billion) has been invested so far.

Volkswagen plans to replicate the same factory model at two additional sites, in the Spanish city of Valencia and in St Thomas in Canada, which are scheduled to begin production in 2026 and 2027, respectively.

Chief executive Oliver Blume described the new plant as a "signal for Europe" and a key element of the group's strategy.

He said Volkswagen had become the first European carmaker to establish its own development and production of battery cells, strengthening its position and independence in global competition.

Initial output at Salzgitter is limited, with only a few hundred battery cells set to be produced per day. However, volumes are expected to rise rapidly.

The Salzgitter facility alone will eventually supply 60,000-70,000 cells per day. There can be hundreds or more cells in an electric car battery pack.

The target annual capacity of the factory is 20 gigawatt hours, or enough to power around 250,000 electric vehicles.

The cells from Salzgitter will be used for the first time in the new VW ID Polo and Cupra Raval electric city cars, which are scheduled to launch in Spain in 2026.

Chinese dominance

"Whoever masters the battery masters the car," said chief technology officer Thomas Schmall.

According to VW, the battery accounts for 30-40% of the total cost of an electric vehicle.

So far, manufacturers from Asia, especially China, have dominated the market and have a big head start.

The bankruptcy of Swedish manufacturer Northvolt, in particular, has recently put the brakes on Europe's battery hopes.

Slump in electric car demand

"If overall demand grows more slowly than originally planned, then PowerCo will also grow more slowly," said Schmall. "We are dependent on the ramp-up of e-mobility."

He argued that VW would be adequately served by three battery factories, and did not require the six originally planned by former boss Herbert Diess.

"There are no plans for further sites at the moment," he said.

PowerCo boss Frank Blome said that the recent change in Brussels regarding the phase-out of the combustion engine did not change the company's view on the future of electric vehicles.

The European Commission has softened its stance on the phase-out, saying that some types of car with combustion engines will still be able to be registered after the deadline of 2035.