Investment strategies & alliances with battery manufacturers
are in trend for automakers

Author Lokesh Dahiya

Joint ventures for batteries have become the must-have deals for automakers that have set ambitious targets to deliver millions of electric vehicles in the next few years. There is a great flurry of memorandums of understanding, joint ventures, partnerships, equity investments, mergers and acquisitions happening now and will continue into the near future.

In 2020, Volkswagen spent 1.1 billion euros in China for a 26.5% stake in Gotion Hi-Tech, and 1 billion euros in JAC Motors. In 2019, it bought a 20% stake in Swedish cell manufacturer Northvolt AB and a 50% ownership of joint venture Northvolt Zwei in Germany. It has also secured long-term supply contracts with Korean battery maker SK Innovation. Honda took an equity stake in CATL in July 2020 for joint battery development focused on reuse and recycle design efficiency. Daimler owns a 3% stake in Chinese-American Li-ion producer Farasis for supply security of high nickel Li-ion. Tesla purchased ultracapacitor and electrode manufacturer Maxwell Technologies in Feb 2019 for strategic manufacturing processes advantages and automation equipment manufacturer HiBar in Oct 2019.
Mercedes-Benz, in addition to setting up eight new battery plants to supply its future EVs, said it was partnering with Sila Nano, the Silicon Valley battery chemistry startup. French manufacturer PSA formed a joint venture Automotive Cell Company (ACC) with SAFT in Sep 2020 to manufacture Li-ion in Europe and Total (SAFT’s parent company) formed a joint venture with Chinese battery manufacturer Tianneng Energy Technology (TET) in Apr 2019 to expand Li-ion cell manufacturing in China. In June 2019 LG Chem and Geely announced the establishment of a joint venture company with a 50/50 shareholding structure to be jointly engaged in the production and sales of new energy vehicle batteries in China. Toyota and BYD announced the establishment of a joint venture company for R&D for EVs in Nov 2019.

The string of partnerships and joint ventures follow a trend as automakers are realizing how critical the battery is and are taking more control of the production of the cells to ensure their own supply. They want a more active role in the development and even production of battery cells. These new relationships can serve to mitigate complexities in logistics, reduce risks and leverage individual companies’ strengths. Tesla, BMW and Volkswagen were early adopters of the battery joint-venture strategy. In 2014, Tesla and Panasonic signed an agreement to build a large battery manufacturing plant, or a Gigafactory as we call it now, in the U.S. and have worked together since. BMW began working with Solid Power in 2017 to create solid-state batteries for high-performance EVs that could potentially lower costs by requiring fewer safety features than lithium-ion batteries.

While traditional automakers had the time and money to vertically integrate and build their own internal combustion engines, the lack of know-how and the initial cost of lithium-ion battery production forced them to enter into EV-related collaborations. Once consumer electronics battery suppliers, companies such as Panasonic, LG Chem and Samsung SDI are now facing overwhelming demand of the industry and hold the key to successful EVs. So, it is not surprising to see automakers funding their suppliers as the booming battery demand requires new and expensive manufacturing facilities.

The collaborations with battery manufacturers surely are beneficial in the short term as the automakers know little about building batteries. But in the long term, depending on third parties for the most important and expensive part of a vehicle is obviously undesirable for automakers. Elon Musk publicly complained of Panasonic’s poor performance in lithium-ion output and tweeted in April 2019 that “Pana cell lines at Giga are only at ~24GWh/yr & have been a constraint on Model 3 output since July.” It is safe to state that automakers may eventually terminate these collaborations and try to vertically integrate and build lithium-ion batteries in-house.

An interest group at the Indian School of business, India. We write about technologies & their applications in businesses.