Automakers Producing Batteries: There's A Good Reason for Them to Do That

In Brazil, carmakers are more commonly known as assemblers (montadoras). That started because automobiles need multiple parts, and most of them come from suppliers. You name it: glasses, seats, tires, wheels, steering wheels, electronic modules, semiconductors, wiring harnesses, etc. Automakers produce primarily the body and the combustion engine. With the shift to electric mobility, they may make even fewer components. However, some are willing to change that and increase verticalization, especially when it comes to cells.
Volkswagen Unified Cells 1 photo
Apart from being the heaviest components in electric vehicles, battery packs are also the most expensive. Any issue with them renders the EV useless. Used ones are now facing the challenge of replacing these components feasibly. In most cases, new battery packs are more expensive than the entire electric car. Recent recalls show carmakers may have more good reasons to produce them on their own.

The first one came from Hyundai. It created a very successful EV – the Kona Electric – until fires started happening. One of the first ones took place in Canada on June 26, 2019. Investigations were still ongoing in 2020, and Hyundai decided to recall the vehicles in October of that year.

According to Hyundai, the issue was a folded anode tab in the cells made by LGES (LG Energy Solution) in its Nanjing plant in China. Rumors stated LGES would pay 70% of the recall costs, but none of the companies confirmed that was the case.

Almost simultaneously, GM began having issues with the Chevrolet Bolt EV. Fires started to turn up while the car was charging or right after the process – which was also the case with the Hyundai. LGES was also the supplier for these batteries.

GM initially denied it was something similar to what happened with the Kona Electric. Their batteries were made in a South Korean plant. When rumors emerged about the issue being with cell separators, the American company was quick to inform its LGES cells had different separators. It also tried to fix the situation with a bunch of software updates that made no difference in fire occurrences.

It took a long time for GM to admit it would have to replace the defective battery modules. The last update was that it would switch the entire battery pack of all Bolt EV and Bolt EUV units ever made. The estimated cost for that would be $1.8 billion, which would allow the American automaker to open two new car factories if it wanted to.

Before this last update, GM had only said that the association of two rare manufacturing problems caused the fires. After it, the Bolt EV manufacturer disclosed that the issues were a torn anode tab and, ironically, a folded separator. It also said it would seek compensation from LGES, which will have implications that we’ll talk about later in this text.

With so much at stake, does it make sense that automakers accept to buy such an expensive component that can have huge impacts on their reputation, or should they just learn how to produce them themselves?

If you consider Hyundai’s and GM’s situation with these recalls involving LGES, they would probably be better off on their own. Blaming a supplier for an issue does not change much for the consumer: they’ll say that their Hyundai or Chevrolet were problematic, and that’s it. Not having to deal with a third party that may try to avoid liability would also speed up the investigation and discovery of the causes for something as dangerous as blazes.

Another irony is that the first company to reveal it would produce its own batteries was GM. On March 5, 2020, it announced Ultium, which will be made by Ultium Cells LLC, a joint venture between GM and… LGES. At first, it seemed that GM was trying to protect its supplier and partner as much as possible, but it completely gave that up when so many different manufacturing issues in various plants started to appear. How shaken their relationship will be after the recall is yet to be seen.

On September 22, 2020, the Tesla Battery Day revealed the now famous 4680 cells. Until then, the EV maker would only buy them from Panasonic, with which it created its first Gigafactory in Nevada. The furthest Tesla had gone with batteries until announcing the 4680 cells was conceiving a new format, the 2170 cells.

Volkswagen first talked about its unified cells during the Volkswagen Power Day on March 15, 2021. All the company’s suppliers confessed they were surprised to hear that the German automaker would make its own batteries. It is yet unclear if Volkswagen will do that all by itself or with the help of a supplier, like GM did with LGES.

So far, Mercedes-Benz and Ford have also decided to follow suit. The German carmaker announced that on July 22, 2021. On September 2, 2020, Ford’s former CEO Jim Hackett declared the company would buy them instead of producing these components. On April 27, 2021, he changed its mind and said it would manufacture its own cells. The recalls may prove that Ford’s new approach is a wise decision.

Whether it is to retain a competitive edge or just to have more control over a crucial component to electric cars, expect all manufacturers that are serious about going electric to make their own cells. Battery packs are just too important to let them in the hands of other companies.


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