Red ink may deter Powerco suitors

German OEM Volkswagen remains committed to selling down ownership in its Powerco EV battery subsidiary. But negative net cash flow that threatened the €2bn ($2.2bn) mark last year may curtail appetite for now.

“The earnings performance of our battery business was characterised by the ongoing ramp-up of production capacities, particularly in Salzgitter and Valencia,” says VW CEO Oliver Blume. “This, together with some restructuring burden, led to a significant increase in operating loss to minus €1.1bn. In conjunction with the increased investment volume, this resulted in a negative net cash flow of €1.9bn.”

Nor is there any immediate light at the end of this tunnel. “Upfront investments remain at a high level due to the considerable upfront expenditures in the battery and software divisions,” adds VW CFO Arno Antlitz.

“The expansion of BEV volumes, particularly in Europe, as well as the ramp-up cost of the new models and our battery activities will have a negative impact on our earnings in 2025,” the finance chief continues. Alongside the development of the revived Scout brand in the US and the new products bring developed for the Chinese market in Anhui, the Powerco battery subsidiary is identified by Antlitz as one of the three parts of the VW business that do not have “sales and turnover so far, so they really weigh on our operative result in terms of ramp-up of cost”.

“This effect will continue for a certain extent also in 2025. We will see the first… ramp-up of battery [production] in Salzgitter in 2025, but obviously no significant sales,” he warns.

But there is no sign that VW is changing course from developing the capability to make its own batteries in-house. “We are focusing on the implementation of a holistic battery strategy,” Blume reaffirms.

And the VW chief is hopeful that current negotiations at EU level around greater support for BEV adoption may see additional help in building out a European battery production supply chain. Discussion on how “to support battery production in Europe to make Europe more independent from other regions of the world is one important topic” of the dialogue, Blume says.

But despite Powerco’s current pre-revenue and capex-hungry status, Volkswagen remains hopeful of diluting its ownership in the battery firm by attracting outside investment. “In line with what we promised [at] the Capital Markets Day, we look on all the non-automotive assets,” says Antlitz.

“The team is in place on Powerco; we have their investor readiness project started,” he continues. Whether such a sale could attract many bids — before Powerco moves into commercial production and given the travails of several European battery start-ups in recent years — might remain another matter.

No Kathleen Valley stope this month – Liontown