Volkswagen Brand Doubles EV Share Target While Maintaining Margin Goal
(Bloomberg) -- Volkswagen AG’s main brand doubled its forecast for the share of purely battery-powered cars in Europe to 70% by the end of the decade, signaling it expects to be delivering well over 1 million EVs a year by then.
“We’re increasing the pace and there will be more change at Volkswagen in the next few years than ever before,” VW brand chief Ralf Brandstaetter said.
VW’s new target follows a year in which Europe passed China as the world’s biggest market for EVs. The development has triggered a number of carmakers to switch gears, with Sweden’s Volvo and the Britain’s Jaguar planning to quit selling combustion cars altogether by 2030. Ford Motor Co. also recently announced the same for its passenger car business in Europe.
VW typically sells about 1.8 million cars annually in Europe, compared with about 960,000 for Ford and 340,000 for Volvo.
While transforming into an EV maker, the VW brand will still deliver an operating profit margin of at least 6% as of 2023, even as battery cars generate slimmer returns and the company steps up the pace on investments in electrification and digital services.
VW plans to return to profitability in the U.S. and South America this year after long-standing losses. High costs compared to rivals have long irked investors, and the company is targeting a 5% reduction in fixed costs by 2023 along with a 7% lowering of material expenses.
The transformation of the VW marque is key for Europe’s largest automaker as it accounts for roughly half of global deliveries. Its profitability trails other mass-market rivals as it is saddled with significant development costs for components used by other VW group brands. PSA Group divisions were the envy of the industry before the French manufacturer combined with Fiat Chrysler to form Stellantis NV earlier this year.
The VW division had a negative return on sales after the first nine months last year with an operating loss of 1 billion euros ($1.2 billion) as the pandemic shut factories and cut sales. In 2019, the margin was 4.3%.
VW’s rollout of electric cars is gaining steam. The ID.3 hatchback, the first vehicle from its dedicated EV compact-car platform, went on sale in 2020. It’ll be followed by the all-wheel drive ID.4 SUV and the ID.5 crossover this year. The seven-seat ID.6 X will go on sale in China in the fall. Plans for a smaller EV below the ID.3 priced at around 20,000 euros have been pulled forward by two years to 2025.
VW’s electric transformation got a boost this week when UBS Group AG analysts said the ID.3 and VW’s EV platform were competitive with Tesla Inc. on key metrics including cost, energy density and efficiency. All electric cars from the VW brand will have a positive margin from the start, Brandstaetter said.
Among the broad electric shift, key models including the Golf, Tiguan and Passat will get combustion successors to help finance the move toward EVs. Other models face risk of being weeded out. The iconic Beetle or former best-sellers like the Passat sedan have already been axed to free up funds. There are no plans to build a successor for the Touran minivan and potentially other models, Brandstaetter said.
The brand is investing about 16 billion euros in areas including electric mobility and digitization through 2025. It’ll start over-the-air updates every 12 weeks starting this summer with a plan for a fleet of more than 500,000 fully connected cars on the road in two years.
©2021 Bloomberg L.P.