FRANKFURT -- China may be the first country where Volkswagen Group could invest billions in one or more plants to manufacture battery cells and packs, a source close to senior management said, citing the Chinese government’s determined push towards electromobility.

Volkswagen is in the process of overhauling its long-term strategy for the group and its 12 brands, and a key part, according to CEO Matthias Mueller, is an “electrification initiative second to none in the industry” including the launch of 30 fully electric models by 2025.

VW anticipates it will sell anywhere between two to three million battery electric cars and plug-in hybrids annually at that point, after previously forecasting one million. Mueller believes that just five years later, a third of the group’s entire fleet of new cars will be electrified. In order to reach that, he said, VW is facing a massive challenge on the procurement side.

Whereas current global automotive cell capacity is estimated at around 27 gigawatt hours of supply for the entire industry, VW believes it alone will need the equivalent of 150 GWh just to power its own fleet. “That is roughly 10 battery plants, each requiring investments of 2 billion euros, so that’s 20 billion in total,” the source said.

How much of that investment would come from VW directly and how much might come from suppliers remained a matter under discussion, he said, as the company will need most of the rest of this year to finalize its strategic roadmap.

When asked where all these plants might be built, the person responded “China is likely one of the first, since we think electromobility will catch on there as a trend much sooner given the government’s relentless push.”

China offers another major advantage. If one or both of VW's joint ventures in the country built a plant for battery cells and packs, VW would only have to finance half the funding with the other half coming from Shanghai Automotive and/or FAW.

China’s government hopes that by electrifying cars in the country, it can alleviate the smog and pollution in city centers. Vehicles that can operate on electricity for at least 50 km can be deemed “New Energy Vehicles” and are exempt from the limits now in place for license plate allocations in several major cities. They also benefit from various financial incentives, although the bulk of these are only rewarded to those manufactured domestically, disqualifying models such as the Tesla Model S.

Critics argue however that this will simply shift them from the metropolitan areas out to rural areas. Moreover, the country’s reliance on unwashed coal, which has not been treated to remove impurities, means that carbon emissions and pollution may even increase.