Also VW Says the Next Generation of Combustion Cars Will Be Its Last

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WOLFSBURG -- Volkswagen Group's core brand aims to raise its profit margin faster than previously planned despite rising investments for electric vehicles, the automaker said on Thrusday.

The Volkswagen brand now aims to raise its profit margin to at least 6 percent in 2022, three years earlier than initially forecast. Most recently, the margin stood at 4 percent. VW had previously said it seeks to achieve an operating return on sales of at least 6 percent by 2025.

VW brand aims to invest more than 11 billion euros ($12.5 billion) in e-mobility, digitalization, autonomous driving and mobility services by 2023, including 9 billion euros for electric cars as it increases the number of battery-powered models to 20 by 2025 from two now.

To shoulder the investments, VW aims for bigger cost cuts than previously planned, with the productivity of its plants to rise by about 30 percent by 2025. The automaker will extend a cost savings and efficiency program at its core brand beyond 2020 and seek an additional 3 billion euros in cost savings by 2023.

The group did not reveal details about whether jobs would be affected but has ruled out forced layoffs.

“We must force the pace of our transformation and become more efficient and agile,” Ralf Brandstaetter, the VW brand’s chief operating officer, said. “What we have achieved so far is still not enough.”

There will be a "massive reduction" in the complexity of the model portfolio, VW said. In Europe, the brand will be discontinuing 25 percent of the engine-transmission variants with low customer demand in the coming model year. This will have positive effects on the complexity of production and the supply chain, VW said.

Entry level motorizations will only come with manual transmission in future and will no longer offer the option for an automatic transmission or all-wheel drive, Brandstaetter said.

The brand aims to underpin about 80 percent of its vehicle production with its flexible MQB architecture to save costs, up from 60 percent now.

The VW brand accounts for about half of the 12-brand VW Group’s global deliveries.

VW said that talks with Ford about extending a potential alliance beyond commercial vehicles continue and remain constructive. The company said it could cooperate in the area of electric and autonomous cars and that it had plans to increase the number of cars on offer to customers in the U.S. by at least two SUVs.

On Tuesday in Washington, VW CEO Herbert Diess said the company was also "considering building a second car plant" in the U.S., adding, "We are in quite advanced negotiations and dialog with Ford to really build up a global automotive alliance, which also would strengthen the American automotive industry."

Bill Ford, executive chairman of Ford, on Tuesday said: “We haven’t gotten that granular in our talks yet, but clearly we are talking with them.”

He said the talks were going “really well” and that “the culture fit is good.”

VW will also make electric cars in the U.S. in the medium term, although no decision has been made about the production site, the automaker said at a press conference at its headquarters in Wolfsburg, Germany.

VW expects the era of the combustion car to fade away after it rolls out its next-generation gasoline and diesel cars beginning in 2026. From that point, VW will merely modify, rather than overhaul, its platforms for combustion engines.

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Volkswagen AG expects the era of the combustion car to fade away after it rolls out its next-generation gasoline and diesel cars beginning in 2026.

Traditional automakers are under increasing pressure from regulators to reduce carbon-dioxide emissions to combat climate change, prompting Volkswagen to pursue a radical shift to electric vehicles.

“Our colleagues are working on the last platform for vehicles that aren’t CO2 neutral,” Michael Jost, strategy chief for Volkswagen’s namesake brand, said Tuesday at an industry conference near the company’s headquarters in Wolfsburg, Germany. “We’re gradually fading out combustion engines to the absolute minimum.”

The world’s largest automaker has started to introduce its first wave of electric cars, including next year’s Porsche Taycan. The rollout across its stable of 12 automotive brands is forecast to comprise about 15 million vehicles, as the company earmarks $50 billion over the next five years to spend on its transformation to self-driving, electric cars.

Production of the VW brand’s I.D. Neo hatchback will start in 12 months in Germany, followed by other models from the I.D. line assembled at two sites in China as of 2020. VW plans to launch fully or partly electric versions across its lineup of more than 300 cars, vans, trucks and motorbikes by 2030.

‘Fully Committed’

VW will continue to modify its combustion engine technology after the new platform is introduced next decade. After 2050, there may still be some gasoline and diesel models in regions where there is insufficient charging infrastructure, according to Jost.

Problems with diesel pollution in cities can be resolved with cleaner engines, but the much bigger threat in the long run is CO2 emissions, which contribute to global warming, the VW executive said.

The German manufacturer is “fully committed” to the goals outlined in the Paris climate accord, which calls for accelerating the rollout of vehicles that lower or eliminate harmful emissions, he said at an industry conference organized by daily Handelsblatt.

The gradual exit of combustion engines marks a sea change for Volkswagen, which became the poster child of car pollution after it admitted to cheating on emissions tests in a scandal involving 11 million vehicles worldwide.

“Yes, we have a clear responsibility here,” Jost said. “We made mistakes.”

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