Why Volkswagen Wants BYD in Its Battery Mix

When it comes to potential battery partners for plug-in vehicles, Volkswagen is now a triple-timer: The German automaker has a year-old partnership with Sanyo Electric to develop batteries for plug-in vehicles, and a three-month-old arrangement with Toshiba for an upcoming electric concept — and as of this week, it’s flirting with BYD Auto for a third battery deal. What did VW see in BYD that helped the China-based, Warren Buffett-backed company snag a tentative deal to supply lithium-ion battery technology for upcoming VW cars (the two companies have committed only to exploring options for collaboration)?

According to powertrain analyst Mike Omotoso with J.D. Power and Associates, BYD has a few things that U.S.-based battery startups like A123Systems, Sakti3, Imara and ActaCell simply can’t offer at this point: a major presence in China and significant R&D resources. Omotoso told us in an email today:

China is a very important market for VW (and all other major car manufacturers), so getting their foot in the door for the EV market is crucial. BYD also has a large research capability — they have 3,000 engineers in Shanghai and plan to employ 10,000 more engineers in Shenzhen. So VW can get a head start by using BYD’s engineers instead of starting from scratch themselves.

VW isn’t the only would-be player in the nascent electric vehicle market with an eye on China. As we noted earlier this month, Frost & Sullivan analysts expect cars in China to go mostly electric within a decade — a trend driven partly by government incentives and Chinese automakers jockeying to leapfrog legacy car companies in North America, Europe and Japan that haven’t yet mastered the technology.

VW isn’t ready to give up the chase just yet, but it may need help from a local player to establish itself quickly enough in the race for a piece of the Chinese market. VW’s Ulrich Hackenberg said in a release about the BYD agreement earlier this week, “Particularly for the Chinese market, potential partners such as BYD could support us in quickly expanding our activities.”

The deal is not without possible pitfalls. “There could be quality issues, as there are with conventional Chinese vehicles,” Omotoso said. Then there’s the question of “loss of identity from VW’s point of view,” as Omotoso put it. If VW produces a successful electric vehicle using BYD batteries, the piece that represents the biggest cost and one of the highest hurdles for automakers hoping to launch plug-in cars for the mass market, do the tech kudos and EV cred go to VW?

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