Mobility

Thomas Schmall:
“Success Factor
Raw Materials”

Lithium, cobalt, and nickel are three substances that make electromobility possible — and that also create dependencies. Porsche Consulting Magazine asked Thomas Schmall, the member of the Group Board of Management responsible for Technology, how Volkswagen seeks to ensure supply and sustainability over the long term.

 05/2024

Thomas Schmall is the member of the Volkswagen Group Board of Management responsible for Technology, and Supervisory Board Chairman for the new subsidiary PowerCo SE. PowerCo is building its own cell factories in Europe and North America and seeking to establish new production methods.Volkswagen AG

Mr. Schmall, let’s talk about raw materials. Why is this topic becoming so important in connection with electromobility?

First of all, e‑mobility is and will remain the key to greater cli­mate pro­tec­tion in traf­fic and trans­porta­tion. Elec­tric dri­ves will be pow­er­ing most of the vehi­cles on our roads in the future. We as a com­pa­ny have made a very clear com­mit­ment to elec­tri­fi­ca­tion and are pur­su­ing this strat­e­gy world­wide. But the shift to elec­tric cars means chang­ing the entire value chain. The tech­no­log­i­cal and com­mer­cial heart of each vehi­cle is now the bat­tery. And when you look at bat­ter­ies, you quick­ly see that raw mate­ri­als are by far their largest cost item. A cru­cial fac­tor on the road to afford­able elec­tric cars for every­one there­fore con­sists of com­pet­i­tive costs for bat­tery mate­ri­als like lithi­um and nickel.

But these raw materials are said to be in short supply. Not a good situation, right?

A sta­ble sup­ply of raw mate­ri­als has in fact become a major com­pet­i­tive fac­tor. Not only for Volk­swa­gen but for the entire indus­try. The short­ages have less to do with glob­al deposits than with the avail­able capac­i­ties for min­ing and fur­ther pro­cess­ing them. Over the past years we’ve seen very volatile raw mate­r­i­al prices, a ver­i­ta­ble roller coast­er. In order to shield our­selves from this over the long term, we’re tak­ing a very strate­gic approach to raw mate­r­i­al procurement.

Unified cells and standardized plants are expected to make Volkswagen’s European battery production profitable. The first gigafactory is being built in the northern German city of Salzgitter. Luna Yzaguirre Sánchez, Director Battery Cell Development, shows a unified cell.Volkswagen AG

What does that strategy look like?

PowerCo’s strat­e­gy is based on an inte­grat­ed value chain. That means tak­ing all the rel­e­vant areas, from raw mate­r­i­al pro­cure­ment and pro­cess­ing to cell pro­duc­tion and recy­cling, into its own hands — both inde­pen­dent­ly and with partners.

Right now we get all our bat­tery cells from exter­nal sup­pli­ers, who also pro­cure the raw mate­ri­als. That will change in 2025 when Pow­er­Co begins run­ning its first gigafac­to­ry in Salzgit­ter and pow­ers up its own cell pro­duc­tion. Gigafac­to­ries in Valen­cia and in St. Thomas in Cana­da will fol­low. At the same time, we’ll be tak­ing greater con­trol of our raw mate­r­i­al pro­duc­tion and processing. 

What does that mean in concrete terms?

Here’s one exam­ple: we found­ed the IONWAY com­pa­ny with our Bel­gian part­ner Umi­core to pro­duce cath­ode and pre­lim­i­nary mate­ri­als. That’s basi­cal­ly the step between mines and cell fac­to­ries. We’re work­ing togeth­er to build Europe’s largest cath­ode pro­duc­tion plant in the Pol­ish town of Nysa.

Above and beyond that, recy­cling and sec­ond-life appli­ca­tions are also impor­tant, such as using old e‑car bat­ter­ies in ener­gy stor­age sys­tems. We need that in order to cover our long-term raw mate­r­i­al needs on our own. It’s good for the envi­ron­ment, and it’s also its own busi­ness divi­sion with con­sid­er­able poten­tial to make our prices even more competitive.

Will Volkswagen also be running mines in the future?

We’re look­ing at that very close­ly right now. We cer­tain­ly want direct access to the rel­e­vant raw mate­ri­als. To do that, we’re con­cen­trat­ing on long-term sup­ply con­tracts with raw mate­r­i­al pro­duc­ers and on finan­cial instru­ments to secure prices, but can also imag­ine invest­ing direct­ly in mines. That makes it eas­i­er to cal­cu­late not only access to key mate­ri­als but also costs. The cur­rent sta­tus is that Pow­er­Co has already cov­ered a large part of its rel­e­vant bat­tery mate­r­i­al needs up to 2030. The goal is a robust, sus­tain­able, and com­pet­i­tive sup­ply of raw mate­ri­als, enabling us to ensure our trans­for­ma­tion to elec­tro­mo­bil­i­ty and take the next step toward world­wide lead­er­ship in e‑mobility solutions.

China plays a dominant role in the battery sector and also controls a large part of the raw material business. Is it even possible to become independent under these circumstances?

It’s not a mat­ter of inde­pen­dence but rather of a rea­son­able bal­ance. We’ll con­tin­ue to use exter­nal sup­pli­ers in the future, includ­ing from Asia and China. But with Pow­er­Co we’re estab­lish­ing our own strong alter­na­tive for the core field of bat­tery technology.

“Decarbonizing the economy and society will always impact nature in some way — the processes are currently highly dependent on raw materials such as lithium, cobalt, and nickel,” says Thomas Schmall.Volkswagen AG

Lithium, cobalt, and nickel are critical raw materials that are sometimes extracted under very contentious conditions. How will you prevent possible violations of human rights or environmental standards in your supply chains?

We take our respon­si­bil­i­ty for sus­tain­abil­i­ty, the envi­ron­ment, and human rights very seri­ous­ly — not only on paper. Volk­swa­gen already requires its sup­pli­ers to com­mit to high sus­tain­abil­i­ty and safe­ty stan­dards. And we mon­i­tor com­pli­ance on site. By 2040, more than 95 per­cent of the Group’s sup­pli­ers should be able to demon­strate a pos­i­tive sus­tain­abil­i­ty assess­ment and cer­ti­fied envi­ron­men­tal man­age­ment. We’re also mak­ing our­selves very trans­par­ent as a com­pa­ny: for four years now we’ve been pub­lish­ing a Respon­si­ble Raw Mate­ri­als Report on our own ini­tia­tive. It cov­ers 18 raw mate­ri­als we’ve iden­ti­fied as crit­i­cal to the sup­ply chain, includ­ing bat­tery mate­ri­als such as lithi­um and cobalt. As far as I know, we’re the first in our indus­try to do so.

No contracts without sustainability?

That’s what we’re after. We want to make a pos­i­tive con­tri­bu­tion to trans­form­ing the raw mate­r­i­al sec­tor and to min­i­miz­ing the con­se­quences of extrac­tion as much as pos­si­ble. With direct access to mines and their oper­a­tors, Pow­er­Co will give us more oppor­tu­ni­ties to do so. But I have to warn against unre­al­is­tic expec­ta­tions. Decar­boniz­ing the econ­o­my and soci­ety will always impact nature in some way — the process­es are cur­rent­ly high­ly depen­dent on raw mate­ri­als such as lithi­um, cobalt, and nick­el. The mate­ri­als we extract today are the key to pro­tect­ing the cli­mate in the future. Recy­cling as part of a raw-mate­r­i­al loop can also con­sid­er­ably reduce the impact over the fore­see­able future.

The road we’re tak­ing to get there, with its clear com­mit­ment to sus­tain­abil­i­ty, is both nec­es­sary and very chal­leng­ing. How­ev­er, it will pay off with sys­tem­at­ic decar­boniza­tion, the prospect of lower envi­ron­men­tal con­se­quences through­out the entire value chain, high­er vol­umes, and greater con­trol over costs. That will mean lower-priced cars with ade­quate prof­it mar­gins, which will enable us to achieve our goal of mak­ing sus­tain­able mobil­i­ty avail­able to everyone.

Carmakers often talk about supply chain complexity, which can make it very difficult to trace materials back to specific mining sites. That will change once you gain access to these materials or even operate mines yourself, right?

That’s cor­rect. Inte­grat­ing the entire bat­tery sup­ply chain does in fact offer new oppor­tu­ni­ties. In the future we’ll know much more pre­cise­ly where the raw mate­ri­als for our e‑cars come from. For exam­ple, mine oper­a­tor agree­ments can require them to work with IRMA stan­dards, which are the best and high­est stan­dards for respon­si­ble min­ing. We can also ensure com­pli­ance con­sid­er­ably bet­ter, for instance with new pos­si­bil­i­ties aris­ing for dia­logue on site with local com­mu­ni­ties. That’s part of the respon­si­bil­i­ty we’re taking.

How realistic is the vision of green sustainable batteries?

Sus­tain­abil­i­ty at any price is just as unhelp­ful as ruth­less­ly low costs. Our goal is to com­bine the two require­ments and set the indus­try stan­dard for sus­tain­able and com­pet­i­tive bat­tery cells. Pow­er­Co is plan­ning to reduce bat­tery costs by up to 50 per­cent with its uni­fied cells. At the same time, we’re work­ing on a series of tech­nolo­gies and mea­sures to sub­stan­tial­ly lower our resource require­ments over the com­ing years and decades. That includes min­i­miz­ing car­bon emis­sions from raw mate­r­i­al extrac­tion, and also using bat­ter­ies that don’t con­tain any cobalt or nick­el. Our cell fac­to­ries will be oper­at­ing on car­bon-neu­tral power. We’re also bank­ing very strong­ly on a cir­cu­lar econ­o­my that imme­di­ate­ly recy­cles pro­duc­tion sur­plus­es and reuses the raw mate­ri­als from bat­ter­ies at the end of their ser­vice lives. In Salzgit­ter we’re run­ning our own recy­cling plant to fur­ther max­i­mize our quo­tas here. All these steps will also ben­e­fit our cus­tomers. For Pow­er­Co I can say we’re not yet where we want to be, but we stand behind our vision and are work­ing hard to achieve it.

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