According to a Reuters report, Volkswagen plan to invest in mining with its subsidiary PowerCo to ower EV battery costs. Many car makers have preferential contracts with raw material suppliers in their pockets. Still, the German carmaker wants to go one step further and go directly to the source by absorbing mining activities in its operations.

According to Thomas Schmall, the board member in charge of technology, mining capacity is the bottleneck for raw materials. This is why the automaker plans to invest directly. By doing so, VW aims to bring down the costs of EV batteries, as the current prices of metals such as lithium, nickel, and copper are skyrocketing due to a scarcity of supply.

Government subsidies

On both sides of the Atlantic, local sourcing of rare-earth materials is supported by government incentives. Companies in North America can obtain funding under President Joe Biden’s Inflation Reduction Act.

Last week, President of the European Commission Ursula von der Leyen issued a draft of the Critical Raw Materials Act, targeting 40% of local raw material sourcing for the booming EV market in the EU. The details are explained in this article.

Volkswagen has already selected St. Thomas, Ontario, Canada, as its first North American Powerco EV battery plant site. As the carmaker has yet to reveal details on the mining companies it is interested in, it would make sense to scout in this region, where raw materials and clean energy are abundant. In addition, cell production at the site in Ontario will also supply strategic and technical partner Ford to use in the MEB architecture that it sources from Volkswagen.

No walk in the park

Despite the scarcity of supply, automotive giants such as General Motors, Stellantis, and BMW are investing in lithium mining in places such as California and Argentina. It remains to be confirmed if Volkswagen wants to go down the same line as Tesla, where Elon Musk has expressed an intention to buy mines and start extracting minerals as an operational branch.

But this isn’t a walk in the park due to the lack of expertise, the time it takes, and the high costs involved. Therefore, Musk uttered the condition of continuous price inflation as the key to his decision.

Volkswagen’s mining interest isn’t a surprise. Last year the Group joined the Initiative for Responsible Mining Assurance (IRMA), an alliance to establish rigorous standards for the responsible extraction of raw materials.

More control

VW’s decision to invest in mines could help the carmaker realize a quintessential ambition of boosting appeal through price competitiveness. Last week the carmaker unveiled a concept of the ID.2, a Polo-sized electric car with an unrivaled price tag of no more than €25 000. Battery cost proves crucial in such a project. Mining for themselves would give Volkswagen more control over its pricing and supply.