Umicore and Volkswagen’s PowerCo in €3 billion Deal for Battery Materials Production

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Umicore, a Belgium-based circular materials technology company, and Volkswagen Group’s battery unit PowerCo have announced a joint venture with a plan to invest about €3 billion ($2.9 billion) to establish a large-scale supply chain for sustainable batteries.

Under the terms of the agreement, the two companies will jointly control the venture and equally share costs, investments, revenues, and profits. The long-term partnership includes the production of precursor and cathode materials in Europe, which are the core input materials and central to the creation of battery value.

The joint venture will start with material for 40 GWh of capacity by 2026 at Volkswagen’s first battery plant in Salzgitter, Germany. The carmaker plans to build six battery factories in Europe, totaling 240 GWh capacity by 2030.

At a later stage, Umicore will provide refining services to PowerCo, aiming to include refining and battery recycling elements.

In addition, Umicore and PowerCo will collaborate on the sustainable and responsible sourcing of raw materials.

“This partnership further strengthens and diversifies our exposure to a major player in the EV (electric vehicle) value chain and marks an important step in the execution of our strategy to set up value creative partnerships across the battery value,” said Mathias Miedreich, CEO of Umicore.

Cathode Material Production

Under the partnership, PowerCo’s European battery cell factories will be supplied with key materials by 2025. By the decade’s end, the partners aim to produce cathode materials and their precursors for 160 GWh cell capacity per year. This would account for an annual production capacity of powering about 2.2 million fully electric vehicles.

Cathode-active materials are imperative for a successful transition towards e-mobility as they are the key technological lever for battery performance and the biggest contributor to overall battery cost.

“Cathode material is an indispensable strategic resource for battery production, accounting for roughly fifty percent of the overall cell value. Immediate and long-term access to extensive capacity is thus a very clear competitive advantage. We are setting up a sustainable, transparent supply chain with high environmental and social standards, localizing value creation here in Europe,” said Thomas Schmall from Volkswagen Group.

This unique cooperation in the European automotive industry is designed to meet both partners’ profitability and return criteria. It will provide Umicore with secured access, through firm take or pay commitments, to an important part of the European demand for EV cathode materials at guaranteed value creative returns. PowerCo will secure cost-competitive access to Umicore’s innovative, sustainably sourced, high-performance battery materials for its unified cell strategy in Europe.

The transaction remains subject to regulatory approval and customary closing conditions. The name of the joint venture has not been decided yet.

Europe is expected to achieve a battery cell production capacity of 124 GWh during 2022, with significant Asian cell producers expanding operations. With current announcements for the construction of battery cell factories covering at least 15 European nations, the latest numbers reveal that Europe will likely accommodate around a quarter of global battery cell production capacities by the end of the decade.

According to Mercom Capital’s 1H and Q2 2022 Funding and M&A Report for Storage, Grid & Efficiency, global corporate funding for battery storage, smart grid, and energy efficiency companies in the first half of 2022 touched $17 billion.