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Volkswagen sets itself up as European electric vehicle champion, but where will all the lithium and

“Our goal is to secure a pole position.”

Thus spake the chief executive of Volkswagen Group (ETR:VOW3), Herbert Diess, at the company’s so-called “Power Day”, which was held on 15 March, in a conscious echoing of a similar event held by Tesla (NASDAQ:TSLA) at the end of last year.  

The idea was to showcase Volkswagen’s move into the electric vehicle space, and to emphasise its arrival as a serious player.

READ: VW’s emergence as top ‘Tesla fighter’ drives shares to highest since emissions scandal

To some extent markets are already on board with this idea, as although Tesla remains the number one car company by market  capitalisation, and an order of magnitude bigger than Volkswagen, nevertheless this year, Volkswagen’s shares have outperformed Tesla’s.

Whether that’s any reflection of valuations returning to a fundamental rather than a speculative basis is an open question. By unit vehicle Volkswagen’s sales far outstrip Tesla’s and always have. But the attraction of Tesla remains: its unremitting focus on electric vehicles.

For now, Volkswagen remains in the company of governments and corporations the world over, talking of target dates and aspirations for change, while Tesla powers on with its singular electric-vehicle-only product range.

So, while it may be that other companies like Volkswagen are playing catch-up fast, Tesla, according to its own publicity as well as the market, retains the edge in not trying to ride two horse at once.

Battery technology is a key aspect of this, and it was noticeable that Volkswagen had a lot to say on battery types during “Power Day” and a little less to say about where the raw materials would be sourced from.

Did Herbert Diess look out in envy from his office window in Germany when Tesla went in to New Caledonia and stake a significant intellectual marker over one of the biggest nickel deposits in the world? And what about lithium? The Volkswagen presentations were notably light about where the company expected to be able to source its supplies.

Given the scale of Volkswagen’s ambitions, these are serious issues. The company has said it plans to develop six “gigafactories” in Europe alone, able to produce a total capacity of 240 gigawatt hours by the end of the decade.

One major hub will be a gigafactory at Skellefteå in Sweden, already well-known as a mining industry hub. But there’ll need to be more to it than that

Volkswagen plans to have a unified battery cell starting 2023, employing lithium iron phosphate, or LFP, in entry models, nickel-manganese in volume models, and nickel-rich NCM in high-end models.

The plan goes against popular belief that nickel-rich chemistries will dominate the electric vehicle market in the future, so perhaps there was less envy of Elon Musk than might be supposed after the New Caledonia deal – after all Diess and Musk are actually known to be quite friendly, and Musk has spoken favourably about a recent VW model.

Still, when all’s said and done, Volkswagen remains beholden to commodity markets and suppliers to deliver the relevant materials to get all these new cars built. How that will get done remains a key question. 

Some argue that Volkswagen was light on information because it doesn’t yet know how and where it will source these metals. But there’s another theory too: that Volkswagen is actually already deep into negotiations, and that it’s deliberately saying very little so as not to influence how those deals end up being priced. 

There’s one source of lithium at Cinovec in the Czech Republic, right on the company’s doorstep. Another lies not too far away, in Portugal, under the ownership of Savannah Resources (LON:SAV). It’s possible to that a new lithium district is being opened up in West of England by the likes of Cornish Lithium and British Lithium, both of which remain private for now.

But where will Volkswagen get its nickel, manganese and tin? And what will the immense demand its proposed 37-vehicle range looks set to create do to prices? The answer can only be good for junior nickel mining companies like Horizonte Minerals (LON:HZM) and Amur Minerals (LON:AMC), whether or not they actually end up selling to Volkswagen.

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