As VW Goes Electric it’s Shifting Focus to Premium Market

In its push to go all-electric, Volkswagen plans to abandon 60% of its internal combustion models during the next eight years and, in the process, will move its focus upmarket, the automaker’s chief financial officer said.

VW CFO Arno Antlitz
Arno Antlitz, Volkswagen’s CFO, said the automaker is shifting its focus to higher margins rather than volume.

This will mark a major shift from VW’s traditional position as the “people’s car” brand, CFO Arno Antlitz told the Financial Times. It also reverses the course set by former CEO Ferdinand Piech and Martin Winterkorn who had put the emphasis on growing sales — the Volkswagen Group besting competitors including Toyota and General Motors to become the world’s best-selling auto company in 2018.

Going forward, “The key target is not growth,” Antlitz told the paper. “We are (now focusing) on quality and on margins, rather than on volume and market share.”

Making a change

VW began shifting course soon after it was caught cheating on diesel emissions tests in 2015 — a scandal that saw the ouster of Winterkorn and a number of other senior executives. It initially began cutting back on the use of so-called “oil burner” technology, then started shifting to battery-electric technology.

VW ID.4 AWD Pro grey driving
Volkswagen is aiming for 55% of all new vehicle sales in the U.S. to be BEVs by 2030.

The automaker now plans to invest more than $100 billion in its electrification push through 2030. Several brands, notably Bentley and Audi, have laid out specific plans to abandon internal combustion engines entirely. The rest of the company is expected to follow sometime in the 2030s.

In the process, Antlitz said 60% of the company’s remaining gas and diesel models will be abandoned during the next eight years — though he did not reveal which ones specifically are set to be phased out.

Nor did the CFO outline what VW’s future volume targets might be. But he made it clear that volume will become secondary to margins.

Margins over volume

Increasing profitability could prove challenging, at least in the near-term, as the various Volkswagen Group brands migrate to all-electric propulsion. For now, batteries add significantly to a vehicle’s cost — which typically runs thousands of dollars more than a comparable gas-powered model. And, even then, manufacturers generally have to reduce margins to help boost demand for EVs.

VW ID Buzz - side
Volkswagen introduced its long-awaited ID.Buzz electric minivan, which is part of the shift to higher margin vehicles.

But where current lithium-ion batteries cost about $150 per kilowatt-hour, that is expected to dip to $100 over the next several years and, industry analysts generally forecast, should then settle in at $70 or less.

By the second half of the decade, said Carla Bailo, CEO of the Center for Automotive Research, production costs for a typical BEV, such as the VW ID.4, should “reach parity” with internal combustion models.

All told, VW currently produces around 100 ICE-powered models. Based on what Antlitz said, that would drop to as little as 40 by 2030. But the German automaker’s overall line-up won’t be that much smaller than it is today since it has indicated it could add 50 or more BEVs by decade’s end.

VW isn’t the only automaker adopting this approach. General Motors, for one, plans to go 100% electric by 2035 and CEO Mary Barra has laid out plans calling for significantly higher margins as it approached that goal. As its sales have grown in the last several years, all-electric brand Tesla has been reporting some of the highest margins in the industry.

Source: The Detroit Bureau Read More