Earlier this week, Volkswagen AG VWAGY, announced that its battery business, PowerCo, is setting up a battery parts joint venture (JV) with Belgian materials firm Umicore for precursor and cathode material production.
The JV, valued at $2.9 billion, was signed in December and is the latest in a series of industry deals to shift focus to a circular battery economy as automakers worldwide join the EV race.
Production at the JV is scheduled for 2025 and will supply PowerCo’s Salzgitter factory, reaching an annual capacity of 40 GWh in 2026. Both companies aim to eventually expand the annual production capacity to 160 GWh by the end of the decade, which will be sufficient to power 2.2 million EVs by the same timeframe. The production site has not been confirmed yet, although Umicore’s Poland plant might be the one chosen.
Per the agreement, the companies will jointly control the JV and equally share costs, investments, revenues and profits. The venture will give both partners the first-mover advantage in the flourishing e-mobility market in Europe by bolstering the new materials production capabilities. Jointly they intend to invest EUR 3 billion to scale up capacities.
Among battery raw materials, lithium, cobalt, nickel and manganese will still be largely sourced from global suppliers, while automakers are targeting to bring cathode production for batteries closer to the domestic shores of Europe and away from other countries and Asian players. The main premise behind this is that cathode materials account for roughly half the cost of an EV battery and are vital for a successful powertrain transition.
Domestic production would allow the development of recycling facilities by freeing it from the hassles and transport costs of raw material mining in other countries. This will make supply chains sustainable amid supply bottlenecks and the continuously soaring costs of battery materials.
Volkswagen is driving efforts toward a rapid transition to all-electric vehicles. Its Accelerate strategy, launched in August, projects that by 2030 the auto magnate will generate 70% of its sales in Europe from all-electric vehicles. The company also projects 100% of its new vehicles in major markets to be carbon-free by 2040. These targets are part of Volkswagen’s broader goal to be fully carbon neutral by 2050. Separately, the carmaker plans to build six battery factories in Europe, targeting a 240 GWh capacity by 2030.
Therefore, through PowerCo, Volkswagen’s move to form closed-loop and regional supply chains is a crucial step in inching closer to its targets. It will also, to some extent, bypass the volatility arising from geopolitical tensions that the world has been witnessing in recent times.
Europe’s battery industry is still in a nascent stage and a supplier industry for battery materials on the required scale is lacking. The efforts on the part of both companies are likely to go a long way in forming a holistic supply chain.
Shares of Volkswagen have lost 42.1% in the past year compared with its industry’s 39% decline.
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Zacks Rank & Key Picks
VWAGY carries a Zacks Rank #3 (Hold) currently.
Some better-ranked players in the auto space are Yamaha Motor Co. YAMHF, sporting a Zacks Rank #1 (Strong Buy), and Visteon Company VC and Wabash National WNC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Yamaha has an expected earnings growth rate of 1% for 2023. The Zacks Consensus Estimate for current-year earnings has been revised 5% upward in the past 30 days.
Yamaha’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in one. YAMHF pulled off a trailing four-quarter earnings surprise of 47.95%, on average. The stock has declined 33.3% over the past year.
Visteon has an expected earnings growth rate of 144.1% for the current year. The Zacks Consensus Estimate for current-year earnings has remained constant in the past 30 days.
Visteon’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in one. VC pulled off a trailing four-quarter earnings surprise of 400.13%, on average. The stock has risen 18.2% in the past year.
Wabash National has an expected earnings growth rate of 241.1% for the current year. The Zacks Consensus Estimate for current-year earnings has remained constant in the past 30 days.
Wabash National’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed in two. WNC pulled off a trailing four-quarter earnings surprise of 28%, on average. The stock has declined 0.2% in the past year.
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