Volkswagen joins hands with cobalt, nickel head enterprises How to achieve electrification ambitions under the dilemma of lack of cores?

"Car Circle Layer" Peng Baoxuan

Edited by Ge Fanmei

On March 21, Volkswagen (China) Investment Co., Ltd. (hereinafter referred to as "Volkswagen") joined hands with Zhejiang Huayou Cobalt Co., Ltd. (hereinafter referred to as "Huayou Cobalt", 603799.SH) and Tsingshan Holding Group Co., Ltd. (hereinafter referred to as "Tsingshan Group"), the head of the upstream industrial chain, to establish two joint venture companies to strengthen the layout of the upstream industrial chain.

As a subsidiary of the german Volkswagen Group (hereinafter referred to as "Volkswagen Group"), a veteran German automobile brand, Volkswagen and its subsidiaries carry out automobile production and sales in various market segments in China, and establish joint ventures with a number of manufacturers in the automotive industry chain in China. On March 15, Volkswagen CEO Herbert Diess said on an earnings call that due to the escalation of the situation in Russia and Ukraine, Volkswagen Group may shift production to China and the United States, and will give priority to China.

However, due to problems such as chip shortages, Volkswagen's deliveries to the Chinese market fell by 14% in 2021. In the electric vehicle market, Volkswagen has sold 70,600 electric vehicles in China alone, which is still a gap from the original sales of 80,000 to 100,000 vehicles.

Expand the "Circle of Friends"

According to the announcement, Volkswagen signed two memorandums of understanding on strategic cooperation with Huayou Cobalt and Tsingshan Group to ensure the supply of raw materials, achieve cost advantages, and strengthen cooperation in the whole industry chain including precursors and cathode materials.

Huayou Cobalt's main business is cobalt, ternary precursors, copper, nickel ore and other products, accounting for 11% of the market share in the domestic ternary precursor market in 2021. Tsingshan Group is engaged in the production of stainless steel and virgin nickel, with nickel production reaching 600,000 tons in 2021, accounting for about 22% of global mine nickel production.

Volkswagen intends to establish two joint ventures with the two companies. The first is to establish an upstream joint venture company in Indonesia with Huayou Cobalt and Tsingshan Group, and it is expected that after full production, the total raw material production capacity of the joint venture company can meet the nickel and cobalt raw material supply required for 160GWh batteries.

The second is to establish a downstream joint venture with Huayou Cobalt in Guangxi, China, specializing in the refining of nickel and cobalt sulfates, precursor processing and cathode material production, helping Volkswagen to further optimize battery costs.

Volkswagen said the partnership will help achieve long-term goals of reducing battery costs by 30%-50%, while improving key performances such as power battery energy density through technology collaboration.

Among the costs of ternary power batteries, the cost of nickel and cobalt accounts for a considerable proportion, and the two materials account for 23% of the cost of the 5-series ternary lithium battery, and 23% and 21% of the cost of the 6-series and 8-series ternary lithium batteries, respectively.

Since December 2021, the market prices of nickel and cobalt have risen one after another. The market quotation of nickel rose from the original 150,000 yuan / ton to 220,000 yuan / ton on March 20, and the market quotation of cobalt also rose from 490,000 yuan / ton to 566,000 yuan / ton, an increase of 15.51%.

It is worth mentioning that due to factors such as raw material prices, since March, at least 8 new energy automobile companies have announced official price increases, including Tesla (TSLA.N), BYD (002594. SZ), Xiaopeng Automobile (XPEV.N), SAIC-GM-Wuling and other car companies, the price increase ranges from 0.3 million yuan / vehicle to 30,000 yuan / vehicle.

In fact, this is not the first time volkswagen has cooperated with companies in China. Previously, Volkswagen had partnered with SAIC Motor (600104. SH), FAW Group (000800. SZ) established SAIC Volkswagen Co., Ltd. (hereinafter referred to as "SAIC Volkswagen") and FAW-Volkswagen Co., Ltd. (hereinafter referred to as "FAW-Volkswagen"), respectively, and Volkswagen and related companies currently hold 50% and 40% of the shares respectively.

In addition, Volkswagen and Jianghuai Automobile (600418. SH) jointly invested in the establishment of JAC Volkswagen Co., Ltd. (hereinafter referred to as "JAC Volkswagen") with 50% and 50% of the shares in 2017, respectively, and launched the Sihao brand in April 2018.

In 2020, Volkswagen increased its investment in JAC Motors, first taking a stake in JIANGHUAI Automobile's parent company, Jiangqi Group, and acquiring 50% of the shares of Jianghuai Automobile Group. Subsequently, jacques Volkswagen was increased by capital, and Volkswagen's shareholding ratio increased from the original 50% to 75%, achieving control over JAC Volkswagen. After the completion of the capital increase, JAC Volkswagen officially changed its name to Volkswagen (Anhui) Co., Ltd.

In December 2021, Volkswagen became a power battery manufacturer, Guoxuan Hi-Tech (002074. SZ) is the largest shareholder, holding 26.47% of the shares. Volkswagen China CEO Feng Sihan said that the strategic investment in Guoxuan Hi-Tech does not mean that cooperation with other partners will be excluded, and Volkswagen in China and NINGDE Times (300750. SZ) and A123 (american lithium battery manufacturer, acquired by Wanxiang Group in 2012), Guoxuan Hi-Tech has formed a good cooperation ecology.

Faced with the problem of missing cores

Behind the establishment of the "circle of friends", Volkswagen's total deliveries in 2021 are flat.

Volkswagen delivered 3.3 million vehicles to the Chinese market in 2021, down 14% year-on-year and achieving a market share of about 16%. Among Volkswagen's car brands, Porsche sold nearly 95,000 units in China, an increase of 8% year-on-year. Bentley and Lamborghini sold 3,916 units and 861 units, respectively, up 36% and 43% year-on-year.

However, Audi's domestic deliveries were 700,100 units, down 3.6% year-on-year. Skoda sold only 71,200 units, down 58.8% from 173,000 units in 2020.

As the same MQB (horizontal engine modular platform) brand as Skoda, jetta sales reached nearly 169,000 units, an increase of nearly 10%. Volkswagen believes that Skoda still needs to do the work of catching up, and since jetta sales in China are very good, it will optimize the combination of brands that are less affected by external influences to increase sales levels in the short term.

In Volkswagen's explanation of the decline in sales in 2021, the problem of "chip shortage" has been repeatedly mentioned, and it said that the "virus" of semiconductor chip supply shortage may be more serious than the epidemic.

From the perspective of foreign chip supply, Japanese chip supplier Renesas was delayed in delivery due to a fire in March 2021, and Malaysia was delayed and cancelled due to the severe closure of chip factories due to the epidemic in August 2021.

In terms of domestic chip supply, Volkswagen believes that China's local supply is also relatively short. As Volkswagen's production and supply base, Ningbo, Tianjin and other places have been affected by the epidemic, and their supply has also been affected.

East Asia Qianhai Securities mentioned in the research report that Renesas, Toshiba and NXP and other automotive chip manufacturers have decided to raise the price of automotive chips by 10%-20% in the second quarter of 2022, and the chip production capacity in 2022 is still in short supply, and the shortage in the automotive field is particularly serious.

The epidemic has not only brought production pressure on chip suppliers, but Volkswagen's factory in China is also facing temporary suspension of production. According to Reuters, on March 17, Volkswagen's factories in Changchun and Shanghai suspended production. Regarding the current production situation of the plant, "Circle Layer" contacted Volkswagen, and the company did not respond to this question.

The road to electrification is difficult

In line with many traditional car companies, Volkswagen is also in urgent need of electrification.

Recently, Volkswagen's charging network joint venture, Camex New Energy Technology Co., Ltd. (hereinafter referred to as "Kaimeis"), has continuously added new foreign investment. From January 19 to March 30, Kaimeis has set up new companies in Nine cities: Shijiazhuang, Xiamen, Suzhou, Changchun, Shenyang, Ningbo, Hefei, Qingdao and Haikou, with business scope including charging pile sales and centralized fast charging stations.

Kaimeis, which is engaged in the charging pile business, is a joint venture between Volkswagen, FAW Group, Star Charging and Jianghuai Automobile, and several companies hold 28.6%, 28.6%, 28.6% and 14.3% respectively, volkswagen said that Kaimeis can fit the MEB offensive well.

MeB is Volkswagen's modular platform for electric vehicles, dedicated to the production and assembly of electric vehicles. Based on the MEB platform, Volkswagen has mainly launched pure electric vehicles such as ID models.

It is worth mentioning that the sales model of ID.series models has changed from dealer model to agent mode, that is, OEM (manufacturer) and consumer directly sign contracts to alleviate part of the inventory pressure. At the same time, dealers become sales consultants, charging Commissions from Volkswagen by providing services such as consulting, test drives, and assisting with car purchases.

Ping An Securities believes that after Volkswagen changes its sales model, the original profit model will be greatly broadened, and the future profit pool will include operating platforms, technology and service licensing in addition to hardware sales.

However, compared with the global market, Volkswagen's electric vehicle market in China is not yet in the next city.

According to the 2021 global pure electric vehicle sales data released by MarkLines, Tesla and SAIC motor achieved sales of 936,000 and 596,000 units, respectively, with Volkswagen ranking third, with global sales of 452,000 units. In the Chinese market, Tesla has sold a total of 484,000 vehicles, accounting for 51.7% of total sales, while Volkswagen has sold only 70,600 electric vehicles, accounting for about 15.6%.

Earlier, German media reported that due to the performance of id. series electric vehicles in the Chinese market is not as expected, Volkswagen Group will replace the head of the Chinese region, and the current CEO of Volkswagen China Feng Sihan left in February 2022.

Subsequently, Feng Sihan responded that the rumors of his departure from China on February 1, 2022 were untrue, but also said" Will I leave China? The answer is yes."

However, the Volkswagen Group announced a series of personnel adjustments in December 2021, in which Ralf Brandst tter was responsible for the China business from August 1, 2022.

Guojin Securities believes that Volkswagen has adopted a radical electric vehicle plan, which is embodied in the radical battery and charging pile construction plan and sales targets, and sees the determination to catch up with Tesla.

In the end, whether Volkswagen can achieve the "ambition" of electrification, "Circle Layer" will continue to pay attention.