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Volkswagen Secures Key Upstream Li-Ion Battery Input

Chinese battery and EV firms may be ahead of the competition when it comes to securing their battery metal supply but others are moving fast to catch up. German automaker Volkswagen (VW) has taken a significant step in guaranteeing the future of its aggressive electric vehicle (EV) production targets by locking in a long-term upstream lithium supply deal with China’s Ganfeng Lithium.

Despite the details of the MoU remaining under wraps, VW has said the agreement will provide the foundation for it to introduce some 70 EV models over the coming decade.

Figure 1VW Group board member for components and procurement, Dr. Stefan Sommer, said the deal represented “crucial strategic significance for implementing VW’s electric offensive”. Pretty strong wording but understandable because the stakes are high.

This development aligns the VW more closely with the upstream lithium-ion battery supply chain. The company has already implied it is considering developing its own battery megafactory (aside from the Foshan plant it operates in a joint venture with FAW in China) for battery production, which brings the focus back to securing the upstream supplies of lithium, cobalt, manganese and nickel required to make the lithium-ion batteries the EV line-up will depend on.

To date, Tesla and BMW are the only other original equipment manufacturers outside of China to have directly secured upstream lithium supply contracts.

Commentary from leading energy metals analyst Benchmark Mineral Intelligence suggests a clear trend that end-user intervention in the supply chain has become necessary since the margins at the battery and cathode section of the supply chain are tightening, compounded by public markets failing to deliver financing for projects at the scale or speed required.

Ganfeng already has supply agreements in place with BMW and LG Chem, amongst other stakeholders.

The move was necessary for VW to support its EV rollout, which Benchmark estimates will require up to 1,500GWh of cell production over the next 10 years.

For some time now, VW has shown considerable interest in securing lithium and cobalt – including hosting two supply-side summits in late-2017 for the two minerals. The Ganfeng deal marks the first major success of VW’s raw material strategy, which is core to its electrification plans.

VW, however, is not an isolated case and all automakers are becoming increasingly aware of the need to secure upstream metal supplies to meet their respective future EV targets.

I believe the VW-Ganfeng announcement is the start of a new phase in which we are likely to see the auto industry involved in a scramble to secure upstream supplies of raw materials.

I invite shareholders to get in touch for more information, or with any questions or comments.

Anthony Milewski, CEO and Director of Cobalt 27

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