Volkswagen kicks South Korean battery makers off its EV plans

Days before Volkswagen AG held an event to announce a major ramp-up in its electric vehicle production, the German car maker abruptly told its South Korean battery suppliers their current technology would be largely excluded from those plans.

Sources say, VW’s decision to move the bulk of its cars to a different battery cell in two years came as a shock to LG Energy Solution and SK Innovation.

Volkswagen’s shift to a new unified prismatic battery, away from the pouch-style manufactured by LG and SK, is likely to be a massive blow given the pair have invested billions in pouch production sites in the United States, Europe and Asia.

The shift also raised concerns among battery suppliers that the race by automakers to meet growing demand for EVs in a rapidly changing technological environment could leave them behind almost overnight.

Volkswagen is under intense pressure to cut battery costs, strengthen its position in China, and better compete with Tesla Inc.

China’s Contemporary Amperex Technology Co Ltd (CATL), which already supplies Volkswagen and Tesla, is making prismatic batteries, the technology favoured for Volkswagen future vehicles.

Thomas Schmall, Volkswagen’s board member in charge of technology, said this week the company would keep its current contracts, adding 80% of its post 2025 generation of EV cars would use prismatic batteries. Schmall did not specify battery technology for the remaining 20%.

Schmall said it would not be a big deal for battery suppliers to switch to production of prismatic cells, although analysts suggested doing so would require significant reinvestment and time to overhaul factories.

SK, which had announced a contract in 2018 to supply Volkswagen with pouch batteries but had not yet started doing so, said it currently has no plans to produce prismatic batteries. It supplies pouch batteries to Hyundai Motor and its sister company Kia.

LG, which makes prismatic batteries but only for smaller goods such as laptops, declined to comment on whether it would expand that production to EV batteries. Volkswagen was one of its biggest clients for pouch batteries, but it retains Tesla, General Motors and Hyundai Motor. It also builds cylindrical batteries for Tesla.