Volkswagen weighs cost of diesel fines
To compensate, it will have to look at making cuts on R&D and that will have consequences
Volkswagen has vowed to make electric cars affordable for the masses. But an earnings report shows how the cost of an emissions scandal could hit those plans.
Net profit in the third quarter fell about 50 per cent, to €1.1 billion, after the company set aside €2.6 billion (Dh9.55 billion) to cover the unexpectedly high cost of repairing diesel cars in the US that contained illegal, emissions-cheating software. The automaker had warned last month the emissions scandal would cut into earnings.
Cut in R&D spending
One way that Volkswagen was able to still report a profit in the quarter, though, was by cutting spending on research and development. That may not be a wise strategy during what Matthias Müller, chief executive of Volkswagen, described in a statement as a “profound structural transformation” in the auto industry.
Traditional car companies are spending heavily to develop battery powered and self-driving cars, while still maintaining their line-ups of cars with internal combustion engines.
Volkswagen has announced ambitious plans to offer a lineup of battery-powered vehicles beginning in late 2019 that would be affordable for middle-class buyers. Herbert Diess, the head of the division that makes Volkswagen brand cars, has said that he sees Tesla as a bigger competitor than traditional rivals like Toyota.
The German company aims to deploy its enormous manufacturing network to churn out battery-powered cars faster, and in greater volumes, than Tesla, which has had trouble meeting demand. But those plans may be difficult to reconcile with cuts in the research and development budget.
The diesel scandal remains a deadweight on the company’s finances and reputation. Volkswagen said that legal settlements and other costs related to the emissions cheating have drained €14.5 billion this year from company coffers. That is money that Volkswagen would certainly prefer to spend developing new products.
The damage from the scandal, Volkswagen said in a statement, was “nowhere near an end and would continue to necessitate great efforts throughout the entire group.”