Volkswagen AG’s boss has handed the company the tall order of profit pushing along with making the switch to electric cars that are still less profitable than their combustion engine siblings. By 2030, VW seeks to lift its group margin around 9% to 11%, compared to last year’s 8.1%. Much of the success of this push will ride on strategic planning of fixing the VW brand that has only made limited progress in improving returns, with margins still trailing competitors like Stellantis NV.
Volkswagen strategic planning
Volkswagen is giving its brands like Audi and Skoda greater independence to create their own customized roadmap to reach cost savings and efficiency goal. This autonomy strategy of Volkswagen with make brands like Audi, VW and Skoda more nimble in tackling bloated structures that have long slowed the carmaking behemoth’s bid to catch up to EV leaders Tesla Inc. and China’s BYD Co. The German company stated it’s pursuing a strategy of “value over volume.”
“We are facing new entrants who are aggressively pushing into international markets,” Chief Executive Officer Oliver Blume said on Wednesday during an investor briefing at Germany’s Hockenheimring racing circuit. “That’s why we also need to change at rapid speed.”
VW’s mass market and luxury vehicle groups will implement their own programs to increase margins with a broader EV lineup and a range of cost cuts led by factory and labor efficiencies. The group is still targeting annual sales growth of 5% to 7% on average until 2027, and an automotive cash flow of between €6 billion ($6.6 billion) and €8 billion this year.
“It’s like in a fitness center,” Blume said, where “everyone on the team is training, and as everybody gets fitter, so does the Volkswagen Group.”
Tackling competition
The stake are high and VW, while still delivering strong profits driven by its Porsche and Audi brands, has lost its sales lead in China after more than 2 decades. Also, VW is facing fiercer competition in China from local rivals like BYD and Nio Inc. Their target of keeping market share roughly stable at 15% is a tough task given its EVs have done poorly there. Reaching those goals, particularly on cost savings to boost VW brand returns to a record 6.5% by 2026, will need to align VW’s many factions from the Porsche-Piech billionaire owner family to Germany’s powerful labor unions, who can significantly water down any measures.
VW has also started a review of €15 billion worth of strategic and financial investments with options including asset sales, CFO Arno Antlitz said.
While VW is realigning, the competition isn’t exactly standing still. Stellantis plans to start sales of the Citroen e-C3 city car priced at less than €25,000 from the start of next year, while VW’s ID.2, targeted around the same price level, won’t hit showrooms for another couple of years. The European carmakers are struggling to come up with affordable EVs that generate sufficient returns because of high battery costs.
VW’s upcoming electric vehicle platform from 2026 is set to deliver vehicles with margins at parity with most equivalent combustion engine models across all segments, as per Blume. To power the shift, the carmaker is trying to secure battery supplies by setting up plants in Germany, Spain and Canada and is spending €20 billion this decade to turn its one-year-old PowerCo battery unit into a unit that has enough cell-making capacity for 3 million EVs a year.
VW is working through software issues that have delayed key new models. It also needs to address sliding market share in China, where costly turnaround efforts are yet to take effect.
The plodding delivery on ambitious goals for its shift away from the combustion engine is also capping VW’s share price.
