VW uses global muscle in race for zero-emission dominance
Volkswagen is ramping up production of electric cars to about 1-million vehicles by the end of 2022, according to manufacturing plans seen by Reuters, enabling the German carmaker to leapfrog Tesla and making China the key battleground.
VW is readying two Chinese factories to build electric cars next year. The Chinese plants will have a production capacity of 600,000 vehicles, according to VW’s plans, revealing its ability to industrialise production faster than other pioneers in the electric vehicle market.
Tesla is still trying to reach its goal of making more than 500,000 cars a year by building a new factory in Shanghai, China, while VW can rely on an established workforce in two of its plants in Anting and Foshun to build zero-emission cars.
The scale and speed of VW’s electrification push marks a shift in favour of established manufacturers that can use existing factories and profit from combustion-engined sport utility vehicles (SUVs) to scale up faster than start-ups.
“The truth is barriers to entry in autos remain high,” said Max Warburton, an analyst at Bernstein Research. “Making cars is hard. The move to electric vehicles will be expensive, but will probably be led by traditional manufacturers.”
VW is leveraging its large infrastructure of suppliers, factories and workers — long a handicap to its profitability — more aggressively than rivals BMW, Renault, General Motors and Tesla, which were all quicker to introduce electric cars.
Rather than adjusting production gradually and using multi-powertrain platforms, VW is making a massive bet on a dedicated electric vehicle architecture, known as MEB, in the hope of increasing economies of scale sufficiently to push down the price of electric cars to about €20,000 (R325,000).
VW is retooling eight plants across the globe by 2022 to specialise in manufacturing electric cars, senior executives told Reuters. It will also license its MEB platform to rivals, putting it on track to become the world’s largest maker of zeroemission vehicles.
Tesla has emerged as a serious competitor with a credible car, its Model 3, VW CEO Herbert Diess said last week. But start-ups have a hard time entering mass production without sufficient production facilities.
To fund its own electrification shift, the German manufacturer aims to increase sales of VW SUVs with combustion engines to 40% of overall sales by 2020 from 23% in 2018.
PIGGYBACKING
The powerstation that supplies energy for VW’s flagship e-vehicle factory in Zwickau, Germany, was built to power production of the combustionengined Golf. Now Zwickau can piggyback off this infrastructure to ramp up production to 330,000 ID cars by 2021.
Volkswagen Group will increase economies of scale by rolling out electric vehicle platforms to its Audi, Skoda and Seat, and Porsche brands. The group will be in a position to build 22-million electric cars by 2028, of which 11.6-million could come out of China.
VW’s expansion push comes at a time when investors have started to question businesses delivering growth without real profit, a change in sentiment that is crippling the ability of several electric car pioneers to raise more cash.
In 2016, Tesla said it wanted to build more than 500,000 Model 3 cars by 2018, a goal it has failed to meet. This year it expects to deliver 360,000 to 400,000 cars, a target that includes all models.
Tesla’s struggles have dampened optimism about how easy it is to enter the car business, making it harder for China’s NIO, backed by internet company Tencent Holdings, as well as others like Faraday Future and Byton, to fund the next stage of growth: capital-intensive volume production and sales.
“So much respect for those doing high-volume manufacturing,” Tesla CEO Elon Musk tweeted in October.
“It’s insanely hard, but you make a real thing that people value. My hat is off to you.”
After starting trial production runs at its factory in Shanghai, Tesla hopes to reach its 500,000 vehicle target in the 12month period ending June 30 2020. It is also looking for a site to start production in Europe.
VW is converting two German plants, Hanover and Zwickau, to build electric vehicles and will retool other factories, including plants in China.
It will retool plants in Emden and Dresden in Germany, Mlada Boleslav in the Czech Republic, and Chattanooga, Tennessee, in the US as part of a €30bn push into e-mobility by 2023.
As a result, the group will be the No 1 electric vehicle producer globally by 2025, while Tesla is likely to remain a niche player, according to UBS automotive analyst Patrick Hummel.
TECH INTERLOPERS
The cutthroat rivalry between vehicle makers and software companies started when Alphabet’s Google presented a prototype autonomous vehicle in 2012, leading analysts and industry executives to fear a socalled Nokia moment. This occurs when a new player from the tech sector unveils a superior design, in the way that Apple presented the iPhone in 2007, ending Nokia’s dominance of the mobile handset business.
Today, Tesla’s cars are generally perceived as cutting edge and potentially more sophisticated than VW’s. Volkswagen’s ID.3, which starts production this year, has an operating range of between 330km and 550km, below the 560km long-range Model 3.
Volkswagen’s edge is more blunt: price and massive economies of scale. The ID.3 has a starting price of less than €30,000 (R487,000) in Germany. By contrast, Tesla’s Model 3 has an average selling price of $50,000 (R732,000).