Volkswagen Group’s China subsidiary and CATL, the world’s leading battery manufacturer, have announced plans to collaborate on developing lithium batteries for Volkswagen’s electric vehicles in China. According to a Volkswagen spokesperson, both parties have signed a statement of intent to design custom batteries with enhanced performance and cost efficiency tailored for specific models in the Chinese market. The partnership will also focus on innovations such as vehicle-to-grid technology, enabling EVs to supply power back to the grid, and advanced cooling systems to improve battery performance and lifespan.
The partnership marks an acknowledgment by both companies that the challenges of next-generation battery development are too complex and capital-intensive for either to solve alone. By pooling their resources and expertise, Volkswagen and CATL hope to accelerate innovation and achieve economies of scale faster than they could.
Initially, the collaboration will focus on various applications for CATL’s lithium iron phosphate, or LFP, batteries. These include structural battery packs, an approach pioneered by Tesla in the Model Y that integrates the battery into the car’s structure to reduce its overall weight and increase rigidity, and energy-density cells designed to maximize the space for electric motors and other components. Both technologies can significantly improve energy efficiency and range for electric vehicles.
Another area of interest for the Volkswagen-CATL partnership is next-generation lithium battery chemistry, which is expected to address the limitations of existing lithium-ion technologies. The companies will likely explore battery chemistries that use less expensive and more abundant materials than current technology, particularly those that reduce or eliminate the need for cobalt, a raw material linked to ethical concerns about mining practices in the Democratic Republic of Congo.
Other potential areas of collaboration between Volkswagen and CATL could include advanced thermal management systems, which ensure the correct battery temperature for optimal performance and safety. The companies may also work together to develop battery recycling technologies that recover critical metals from spent batteries, reducing the need for new supplies of raw materials.
While the Volkswagen-CATL partnership represents a significant shift for both parties, it does not constitute full vertical integration—the type of vertical integration pursued by some Chinese EV makers, most notably BYD. Instead, it creates a “deep strategic alliance” that preserves flexibility for both parties and enables the tight integration necessary to optimize electric vehicle systems. It is a good example of how the EV industry’s evolving landscape creates a hybrid model between traditional supplier relationships and fully integrated vertically integrated producers. In many cases, a combination of these approaches will be required to meet the needs of the industry. Ultimately, the Volkswagen-CATL partnership could set a new standard for future partnerships in this emerging market.
