Source: Northvolt
Source: Northvolt

German auto group Volkswagen AG has acquired a 20 percent stake of Swedish battery manufacturer Northvolt, further cementing its goal to become a European leader in electric mobility as the automotive industry evolves.

In return, the Wolfsburg-based car manufacturer will take a seat on the board of Northvolt, while helping with plans to build a battery cell factory in Germany, the two companies announced on Wednesday.

Construction for the 16GW factory is expected to commence in 2020, with actual battery production slated for the end of 2023 or soon after.

The deal, which is worth €900 million ($A1.47 million), and is also lead by multinational investment banking group Goldman Sachs as well as BMW Group, AMF, Folksam Group and IMAS Foundation, will assist the carmaker in assuring supply for electric car batteries, an issue which was flagged by the European Union in October 2018.

“Volkswagen is laying the groundwork at all levels for the successful implementation of its electrification strategy,” said VW procurement executive Stefan Sommer of the agreement.

“With Northvolt, we have now also found a European partner whose know-how and sustainable, CO2-optimized battery cell production processes will enable us to advance cell production here in Germany.”

The group’s first battery factory will be constructed in Salzgitter in Germany’s northwestern state of Lower Saxony, as an equal joint venture between VW and Northvolt.

The choice of Salzgitter is significant; as one of the most important engine manufacture locations for the auto group, jobs will be lost as the industry moves away from internal combustion engines.

While the initial project will be on a small scale, offering jobs to 700 staff, down the track VW plans to expand the facility to as much as 24 gigawatts.

However, this is not yet set in stone.

“The prerequisite for this, of course, is that the economic conditions are in place,” says Sommer.

For now, battery production in Germany may not be economical, due to the European country’s high energy prices.

Major battery makers from Asia, such as LG Chem and Samsung, have previously chosen sites in Poland and Hungary for their new Europe projects instead as a result.

Volkswagen, on the other hand, is relying on the fact that the new factory in Salzgitter may be exempted from the EEG surcharge in the future and thus produce significantly cheaper.

Even if expanded to 24GW it is understood that this factory alone will not be able to meet the the group’s electrification needs, with a 150GW demand by Volkswagen AG forecast for the future.

It is estimated that to meet its battery production needs, Volkswagen will require at least four large-scale battery production facilities. Until such time, it will continue to rely heavily on supplies from leading Asian cell suppliers in the future.

In addition to Volkswagen, Northvolt’s industrial partners include Scania, ABB, BMW, Siemens, Vattenfall and Vestas.

For Northvolt, the deal is a clear indicator that the Swedish company wishes to be at the forefront of electromobility.

The deal “marks a key moment for Europe that clearly shows that we are ready to compete in the coming wave of electrification, and that we will do so using battery cells which carry the lowest CO2 footprint possible,” said Peter Carlsson, co-founder and CEO of Northvolt in a statement.

VW wants to bring about 70 electric models on the market by 2028, while fellow German auto makers BMW and Daimler are also pushing ahead with their e-offensive, which will see demand for electric car batteries soar.

Earlier this month, the German auto group heralded its ambitious electrification plans with a moving video to create a buzz around its electric Kombi at the same time as expressing a wish to putting the 2015 Dieselgate scandal to bed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.