Volkswagen’s Gigafactories are a supply chain statement

VW

The metamorphosis of the automotive supply chain continues as both vehicle manufacturers and others struggle to redefine their role in the sector.

The most high-profile development over the past week was Volkswagen AG’s new plan to refocus its product strategy around electric vehicles and the development of its battery production plans to support that.

The Wolfsburg based Group has seen a significant recovery in its share price, with the roll-out of the ID series of vehicles which is perceived to have delivered a product competitive with Tesla.

However, the company has also just outlined its new production strategy to support this new line of vehicles. Central to this is the Group’s battery strategy. This is a notable change, with Volkswagen committing to the so-called ‘gigafactory’ in Skellefteå, Sweden which is a joint venture with the battery company Northvolt. Volkswagen’s own battery plant in Salzgitter is also being expanded, with both plants having a target to produce 40GWh of batteries a year. Volkswagen states that it aiming to build a complex of six plants over the next ten years with a total production of 240 GWh worth of batteries.

One of the surprises in the announcement was that Volkswagen has moved away from its present battery suppliers, LG Energy Solution and SK Innovation, indicating that their technology was not favoured as part of the car manufacturer’s future. The clear implication of Volkswagen’s plans is that it wishes to take control of its supply chain, including the important component area of battery production and technology. It is not willing to outsource this to companies it does not control or cannot influence substantially.

Of course, this is an aspiration. Volkswagen has struggled to deliver in other areas of the electric vehicle supply chain, notably in software and it is still not certain that it can provide the agility to adapt to the new technology without help from other, often larger companies such as Microsoft with whom it already has a significant relationship. 

In a measure of the level of change latent in the sector, Foxconn, the Taiwanese electronic assembly subcontractor best known for its work for Apple, has announced that it intends to build an automotive assembly plant in either the US or Mexico. Looking to diversify beyond consumer electronics Foxconn is keen to enter the automotive sector, utilising an ‘open-platform’ approach characteristic of the digital sector that it has experience of. Such an approach ought to be able to accommodate either Foxconn’s technology or other companies.

What is seen here is a conflict between two conceptions of the future of the automotive supply chain. Volkswagen is looking to retain the vertically integrated architecture characteristic of the internal combustion engine vehicle industry of the twentieth century, whereas Foxconn reflects its experience of the fragmented, flexible supply base of the electronics sector. It is still uncertain who will win. 

Source: Transport Intelligence, March 18, 2021

Author: Thomas Cullen


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