Thanks to Volkswagen's order, Northvolt now has a total of $27 billion worth of orders for batteries. The $14 billion order from the German car manufacturer is for the coming 10 years and requires Northvolt to expand its factory. As part of the Swedish battery company's agreement with Volkswagen, it will expand its Northvolt Ett "gigafactory" in Sweden until it can produce at least 40 gigawatt-hours worth of batteries annually.
"By consolidating cell production to the Northvolt Ett gigafactory, the partners will achieve further economies of scale, thereby securing the best possible cost and enabling the lowest environmental footprint in the world for cell production," said Northvolt in a statement. (Related: The big electric vehicle LIE: Electric cars are not "zero emissions," and their ecological impact is actually dirtier than diesel trucks.)
The new purchase is part of Volkswagen's grand plan to conquer the electric vehicle market. The company hopes to reach a production capacity of 1.5 million electric vehicles by 2025. The company has also pledged to be carbon neutral by 2050, which means it will likely stop selling vehicles with combustion engines by 2040.
Northvolt's deal will see it become the strategic lead supplier for battery cells for the Volkswagen Group in Europe. It will also see Volkswagen increase its equity ownership over Northvolt as it also plants to purchase the company's joint venture Northvolt Zwei in the city of Salzgitter.
"Volkswagen will continue to deepen the collaboration and partnership with Northvolt," said Thomas Schmall, chairman of Volkswagen Group Components' Board of Management. "Northvolt is one of our key battery suppliers as we make the transition to electric mobility – and there is potential to expand this partnership even further."
"Volkswagen is a key investor, customer and partner on the journey ahead and we will continue to work hard with the goal of providing them with the greenest batteries on the planet as they rapidly expand their fleet of electric vehicles," said Peter Carlsson, chief executive and co-founder of Northvolt.
Volkswagen is planning to sell at least one million hybrid or electric cars this year, which will represent a tenfold increase from its sales of electric or hybrid cars in 2019. Volkswagen chief executive Herbert Diess said that half of those cars will be battery-only while the other half will be plug-in hybrids.
The push to sell one million electric or hybrid cars is an attempt by Volkswagen to recover the profits it lost last year due to the Wuhan coronavirus (COVID-19) pandemic. In fact, if Volkswagen sells a million electric cars, it believes its profit margins will recover as much as 6.5 percent.
This goal is lower than the 7.6 percent of profits that Volkswagen reported in 2019, and lower than the company's long-term target of seven to eight percent profits per year. But it is higher than the 4.8 percent that the company reported during 2020.
The company sold around 231,000 battery-only cars in 2020, a threefold increase from its sales the previous year. The company hopes the launch of its newest models will help boost its sales.
Arno Antlitz, incoming chief financial officer, said this year was "not risk free" for Volkswagen and the recovery from the effects of the pandemic has been very slow.
Diess also said the company will be unable to claw back all of the production capacity it lost last year because its factories are already about to be full. "We expect to be at the limit of our capacity, so we will not be able to recover," said Diess.
Carmakers like Volkswagen have been ramping up sales of electric cars because the European Union has begun tightening its rules in order to force member nations to cut down on carbon emissions or be forced to pay large fines.
Learn more about electric cars and the advantages and disadvantages of their use by reading the latest articles at RoboCars.news.