ELECTRIC SLIDE
Have plans to develop five all-electric models in move aided by profit-margin boost
Volkswagen AG’s main car brand to take on Tesla Inc. as exec vows to speed up ’realignment,’
FRANKFURT, GERMANY— Volkswagen AG’s main car brand pledged to speed up turnaround efforts and accelerate a push into electric cars as cost cuts and an expanding lineup of sport-utility vehicles help boost profit.
The namesake VW brand will initially develop five all-electric models, taking on Tesla Inc. with its coming I.D. vehicle range, it said Thursday at a press conference at its headquarters in Wolfsburg, Germany. The push will be aided by rising profit margins, which are now targeted to reach between 4 per cent and 5 per cent of sales in 2020, up from a previous estimate of at least 4 per cent.
“We will further accelerate the realignment of Volkswagen, continue the worldwide model and electric offensive and work hard on costs,” VW brand chief Herbert Diess said in the statement. “We know which challenges still lie ahead of us.”
Reviving profit at the core VW marque is vital for the world’s largest automaker to stem the fallout from the diesel-emissions scandal and gather the financial firepower to tackle a seismic industry shift toward battery-powered vehicles and new digital services.
The brand accounts for more than half of Volkswagen group’s global deliveries and develops key technology for sister nameplates including Audi, Skoda and Seat. The VW brand will invest € 22.8 billion ($35 billion) over the next five years, including some € 6 billion ($9.2 billion) alone on new technology and electric-car development. A big chunk of these funds will be spent on the planned I.D. range.
VW will offer an all-electric hatchback in Europe in 2020 for a price comparable to the diesel version of its bestselling Golf model and follow up with the I.D. Crozz sport-utility vehicle in the U.S. The company plans to sell 100,000 all-electric or hybrid-electric in 2020, Diess said.
Investor confidence the company is getting past the diesel crisis has helped the stock recover its losses since the emissions crisis erupted in September 2015.
To generate funds needed to finance electric-car development, VW will widen its SUV lineup to 20 models by 2020 and expects those vehicles to account for 40 per cent of sales volume by then. It will introduce more than 10 fully or partly battery-powered cars in China in the same time frame.
While other car manufacturers face heavy losses from electric-car efforts, VW’s new range will “help secure margin targets,” Diess said. “Through high-scale effects and a cost-optimized platform, we’ll make our electric cars significantly more profitable than the competition,” Diess said in a speech.
VW aims to dethrone Tesla and become the leader in electric cars by selling one million purely batterypowered vehicles worldwide by 2025, according to previous statements. VW signed a landmark labour deal a year ago that has already contributed € 1.9 billion ($2.9 billion) in savings. The company is making its vehicle manufacturing less complex and will cut 14,000 jobs, mainly through partial retirement. The cutbacks are part of a bid to boost productivity at VW’s high-cost German factories by 25 per cent by 2020. VW reached the 7.5-per-cent productivity improvement goal for this year “in large parts,” it said on Thursday.
VW has also axed its slow-selling models, such as the flopped Phaeton and the Scirocco and accelerated development of SUVs to increase its presence in this lucrative and fastgrowing market segment, where it has lagged behind rivals for years.
A month ago, the brand slightly raised its ultra-conservative margin goal excluding special items for this year and now expects to “moderately exceed” its target corridor of between 2.5 per cent and 3.5 per cent. Operating profit as a proportion of revenue stood at 4.3 per cent after the first nine months.
Global deliveries rose more than 3 per cent to 5.04 million cars in the first 10 months of the year, helped by demand in China, the brand’s largest market.
Diess acknowledged VW’s recent recovery has been helped by a robust general economic environment.