Chinese company lands multi-billion dollar Volvo battery deal

Contract represents huge investment in electric sector

A leading Chinese electric battery manufacturing company has signed a multi-billion dollar deal with Swedish carmakers Volvo.

Full details of the contract with Contemporary Amperex Technology, known as CATL, were scheduled to be revealed at the Financial Times Future of the Car Summit in London on Wednesday.

Volvo will also be using South Korean company LG Chem to supply batteries, and chief executive Hakan Samuelsson said the company needed to have two suppliers because of the volume of stock they were looking to source which is "more or less the same amount of batteries as the whole of the global supply last year.

"The future of Volvo Cars is electric and we are firmly committed to moving beyond the internal combustion engine," he added.

Volvo is currently investing around 5 percent of its annual revenue–just more than $1 billion–into electric and driverless car technology.

The new battery contract runs until 2028, and Volvo says that by 2025, it hopes half of its sales will be fully electric. Factoring in growth forecasts, that would mean they would need around 500,000 batteries per year.

Both CATL and LG Chem are already among the world's leading suppliers of electric batteries, and as the electric vehicle sector is expected to grow in the future, demand for the parts from car manufacturers is also expected to go up.

"Back in 2017, we were the first traditional car maker to commit to full electrification, and by the middle of next decade we expect half of all our sales to be fully electric cars," said a statement from Volvo. "But to build and sell lots of electrified cars, we also need lots of batteries."

Rival manufacturer Volkswagen has pledged to spend 50 billion euros ($56 billion) to access batteries, and hopes to be selling three million electric cars a year by 2025, while Daimler will spend 20 billion euros over the next 10 years.

"With today's agreement we effectively secured our battery supply for the upcoming decade," said Volvo's senior vice-president for procurement, Martina Buchhauser. "By having two suppliers available in each region we also ensure that we have flexibility in our supply chain going forward."

Volvo says its first fully-battery operated car will be an all-electric version of the current XC40 sports utility vehicle, which will be built at Ghent in Belgium, and from this year onwards every new model the company produces will contain hybrid or electric technology.

Since 2010, the Volvo brand has been owned by China's Zhejiang Geely Holding Group. Three months ago Volvo unveiled its first all-electric vehicle, the Polestar 2, a joint venture with Geely which is due out early next year, and will be the first to feature batteries supplied under the new deal.

Under the terms of the agreement, Volvo will be able to source the most cutting-edge technology as it develops, rather than being restricted to existing systems.