VW Concerned Over High Costs Of Electric Car Development & Production

SEP 17 2018 BY MARK KANE 85

Volkswagen aims for 7-8% margins to be crisis-ready.

Volkswagen began a broad campaign of electrification with an original plan to spend €20 billion ($23 billion) for the purpose, but it’s not going to happen.

It’s already known that the investment will be required to be higher. One of the reasons are… competitors that have been making more progress or, in other words, developing excellent plug-ins.

Volkswagen Chief Executive Officer Herbert Diess said:

“The burden for our company, such as the cost of bringing to market electric cars, will be higher than expected,” Diess said in a joint interview with labor head Bernd Osterloh in VW’s internal newsletter. “This is particularly so since some of our competitors have been making more progress.”

A similar statement comes from Mercedes-Benz, which expects that spending will be higher than an initial estimate of €10 billion.

There is an urgent need to find more money for this armaments race. Volkswagen realizes that 4% margin is just a minimum and the company needs 5-6% to handle some future investments. 8% would make the company crisis-ready and that’s the target level by 2025.

Volkswagen I.D. - Coming in 2020, apparently with 600km (373 miles) of range*
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Source: Bloomberg

Categories: Volkswagen

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85 Comments on "VW Concerned Over High Costs Of Electric Car Development & Production"

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I do not believe them that this is complicated.
Everybody knows that it is incredibly easy to produce EVs if you are a car company that knows how to build cars (which Tesla allegedly does not.

🤣

Tesla doesn’t need to electrify 300 models and they had the liberty of not turning a profit. For VW not yielding their 10% is problematic and they ease people into the fact that their margins will be smaller during the transition and that they hope they will be in the 8% region again in 2025.

If they wait long enough, they will not be able to turn any profit at all.

“7-8%, ready for crisis margins”. What should this tell us about VW’s rehabilitation?

Crisis is cathartic?

@pjwood1, I think you’ve mis-interpreted what he is saying.
I think he is saying that if the company has 8% margins, they are crisis-ready, where crisis relates to global economic challenges or perhaps a major recall.
Anyone hovering around 0% (i.e. not making or losing money) could be easily wiped out in such a circumstance.

VW and Mercedes only need to electrify the cars they want to sell.

Another Euro point of view

So far 3 down votes for stating the obvious. Congratulations but I am sure you can do better. You should try harder with facts and truth.

I’d be really disappointed if this doesn’t get me into the double digit downvotes.

Made it!

Another Euro point of view

😀

Dare you to get triple digits.

Once Tesla goes Bankwupt I will try to be the first to comment “told you so!” that should do it.

Nice, that should get you close to 100👎.

He’s not worth it…

I think the late David Green is the only one who can pride himself on having achieved that…

What facts are those? Why do they need to electrify 300 models? The higher margin Model 3 is now beginning to turn a profit so why can’t VW do this? They are both publicly traded companies with stockholders a board and a CEO. Maybe there is a reason Tesla is able to get shareholders excited and willing to invest long term into growth in electric powertrains while VW can’t. Maybe VW should try to emulate what Telsa is doing. Tesla isn’t made of magic. They have brick and mortar buildings operated by flesh and blood people. If anything VW should have far more resources to bear in order to build excitement and draw in investment toward an EV line. They could start like Tesla did by making a halo EV with a higher margin and lower volume in order to bring in investment and to start building out supply lines and infrastructure. They could actually try to make a halo luxury car that is actually better than the Model S as this first step. But they haven’t done that. Instead they have simply bought components from 3rd parties and built half-assed low volume money loosing compliance EVs. In fact how… Read more »

It isn’t about building a single compelling car. That is useless to VW except for showing off.
You can’t sell 11 million Model 3 a year. You can’t even sell 3 million of them a year and that is the target output for the VW group in 2025.
If you don’t make a car for all the customer needs someone else is going to do this and you lose potential sales. That is why you need a e.g. a Golf sized car as a hatchback with 3 and 5 doors, also as a convertible and a coupe and a station wagon option. Because customers have different sized wallets you offer those cars under different brands with different levels of luxury, comfort features and of course styling for image -> Audi, VW, Seat, Skoda. If you do this for every size car you offer you are in the hundreds of cars easily. This is just how things work.

Big swinging company, forcing homogeneity. VW was coming up with rents for all sorts of things. Parts that cannot be serviced, fluids only they can make. The list goes on. Yes, that is how they work; for themselves.

Instead of a halo EV, they restricted the Buzz concept to 25mph. That silly company still has some tricks. I don’t dispute your numbers. Three million makes the 100k EV production plant look properly small.

Last week’s widely published WSJ story, on cobalt mining, pointed at Apple and VW. After reading it, I know VW enough to see them paying WSJ to tarnish auto batteries. It would be a Marchionne’esque way of saying “Please, don’t buy our EVs”. Call my cynical, but that is also Just how they work. Ask any macaque.

Are you really blaming them for restricting the speed of a concept vehicle they did only allow to be driven while being escorted by the police on a closed road?
Rebuilding the car because some idiot crashed it would cost a million easily not even talking about the unfortunate photos this would create.

Yes

So what is the penalty for the Tesla Roadster 2 only allowed to be driven by certain Tesla employees and no journalists at all?

If you are an assembler with poor margins then the future with no oil changes and excessive repairs, and product development of actually new tech is daunting. Spacex did the same thing to its competitors. They had trolls too.

He has it arse-backwards.

It is much harder to build out an entire line of cars from nothing with no other vehicle sales to support your business, than it is to convert a handful of core chassis upon which multiple variants are built where the sheet-metal changes but the chassis is the same.

Anyone not understanding this simply doesn’t understand automotive manufacturing.

Do you seriously not understand that VW/Audi reuses the same chassis across brands and models, so there aren’t really 300 variants, just 300 skin-jobs?

Unfortunately for VW, their platforms are useless for EVs.
What you described was truth 15 years ago. Car makers then had 8 different chassis and made 24 models of it. Now they have 2-3 modular platforms which further unifies single components. On the other hand each model has its own chassis build on that platform, which takes more time and money to build. But you can offer models that are more different from the users perspective.
The current e-Golf is the best EV VW can make from its current platform, but we all know is not enough.

Why do they need 300 models?

To offer choices in style, form, function, comfort, luxury and price.

They don’t offer much of that now but they need to for evs? Please…
More excuses!

That shows your bias rather than being a legitimate critique of one of the largest vehicle manufacturers on the planet. They must be doing something right.

yes, deceiving the public

“That shows your bias”
Yes, it’s true! I’m a eGolf owner so i must be bias.

They do offer that many models over all the VW brands.

Of course, if you count all the concepts and versions they have.

Tesla is selling quite a few EVs and they only make 3 models. VW doesn’t have to convert their entire fleet in one fell swoop. It’s not all or nothing. That’s ridiculous.

They have to convert about 25% of their 11 million yearly output by 2025 or they won’t be able to meet fleet emission targets in the EU and EV mandates in China.
In order to do this as a profit they need high sales numbers. You can of course sell a Porsche for 100k or an Audi for 80k but if you want to sell 2 million cars and more you need to be able to deliver at 25k and lower. T

Name one other traditional car company that is looking to be anywhere ready for this 2025 date! That’s only 6yrs away and it is well known it takes at least 3yrs to develop a new model. No doubt EV will be longer as it is not just a new model but a new methodology as well.
If China really sticks to it’s agenda then traditional car companies will be in huge trouble, and they are starting to realise it. Don’t worry about the campaign they’ve had against Tesla, wait until you see how hard they lobby to keep their ICE as 2025 draws closer.
Fortunately, us Australians will be an excellent market for the likes of VW as we just can’t understand EV’s are coming whether we like it or not. We’ll be a great, big, ICE dumping ground.

Mercedes and BMW. If you are a company that doesn’t have high powered combustion cars in your EU lineup you have a lot more slack since those Toyotas or Citroens don’t have the high CO2 emissions in the first place.

If they have to meet those targets anyway, then they just need to get started. Basically they appear to be up shit creek without a paddle at this stage. Either those targets are real and the closer they get the harder VW (and all laggard manufacturers) will find it. Or maybe VW believes they can influence the target and keep pushing it back.
In any case, right here and now, all they have to do is make their ID range as conceptuslised, demonstrated, and hopefully to be manufactured. Not 300 variants, not some other pointless exercise and concepts, just get on with the ID range. If they haven’t done their cost modelling correctly, that’s something they need to look at their internal staff about, it shouldn’t be that difficult.
The article cites competitors have made progress so now VW has to play catch up. Interesting fact, the longer they wait the more catch up they need to do. That aspect is neverending and always a reality, whether they build an EV now or later. It’s actually a pretty stupid and obvious statement that every single company battles with on a daily basis.

Do you really think four models (e.g. S, X, 3, Roadster 2) is really going to be enough for a world market for a multi million car producing company? VW need to produce a range that satisfies people in North America, South America, Europe, Africa, SE Asia, China… the list goes on. All those markets have different requirements and wants and as such require different models to be produced.

Companies like Tesla will find this out soon, they’ll have to start producing far more models and variants, or stay a small car company specialising in one or two major markets.

Apple showed that focusing on a relatively narrow portfolio of well-positioned, globally marketed products can work. Obviously the vehicle market is different, but I think there’s plenty of room for Tesla to succeed without dramatically increasing the number of models they offer.

Either way, it’s kind of a moot point–Tesla isn’t planning on only making four models. They’re just focusing on the largest and most profitable segments first. We already know they have the Model Y launching in the very near future, and a truck and compact car only a little further out. Likely even more models will follow, but once they’ve covered some of the biggest segments the need becomes less pressing and they can take their time.

I think cars and smartphones are not comparable.
Apple sells phones that are like a disposable short lived piece of jewelry. But nobody is going to pay for a model 3, 2 or 3 times a comparable car from another brand.
Maybe Ferrari can achieve that with very limited production cars.

SO what you are saying is that once VW makes 1 EV then no one will buy any of their other models so they have to convert all of their models at the same time to EVs? That makes no sense. They can make a profit on EVs by starting with a handful of models using a similar platform, motors and packs.

The only way to really make a profit is to make 1 million EVs a year that all use the same batteries and motor while they are being produced on production lines running at full capacity.

Once autonomous transportation as a service hits, the market will require fewer models not more. As a customer you don’t own the car, so less concerned about individuality. This is the direction the industry will take.

That will only cover a fraction of the market; and not very soon either.

Wrong: VW has the liberty of not having to show profit for years since ICE sales and servicing will provide „free“ money to EV business.

This summary doesn’t make it clear; but from the source article, I gather that they need to increase margin on *existing* products in order to finance the transition.

But that’s tangential to the point of the comment, which was making fun of VW and other established car makers who claimed in the past that anything Tesla can do, they could do better — now oops it turns out it won’t be quite as they thought… Mwahahahaha 😛

On the other hand they have cash flow while they develop.

The VW brand is currently doing about 4% margin the least in the group except for Bentley that is making a loss. Audi and Skoda are the winners with 8%-9% margin. Not counting Porsche, that’s a different level.
https://www.forbes.com/sites/michaeltaylor/2018/03/14/shock-at-volkswagen-as-skoda-upsets-audis-profit-margin-dominance/#6dd414c45e9e

(⌐■_■) Trollnonymous

I guess we will see if they criminally plead guilty, as in the U.S.A.

I thought the bigger news of the past year was the Leipzig Court ruling, allowing Stuttgart and other cities within Germany the right to ban diesel. Right in the back of Porsche’s back yard. That has got to hurt.
https://www.cbsnews.com/news/germany-diesel-ban-federal-court-leipzig-german-cities-air-pollution/

Stuttgart is Mercedes head-quarter, Porsche (near Stuttgart) has given up on Diesel usage for new models already.

Hamburg has also banned old Diesel sometimes on 3 roads, the biggest hit will be Frankfurt with a downtown old Diesel ban.

Can VW afford itself to ignore the EV revolution?

No, VW cannot afford itself to do that.

Ignoring the EV revolution would be a huge strategic blunder.

And they know that.

If VW had been investing in low and zero emission vehicles instead of investing in diesels and investing in figuring out how to not get caught breaking the law they wouldn’t be in this mess. I do hope VW succeeds in finding the money so they can keep paying for that nice charging infrastructure they is building.

Traditional car companies and their investors are about to realize that it’s going to take ten (or more) years of meager profits and serious reinvesting in the company for them to survive the conversion to electric. Look at any other industry that underwent a serious technology shift and see how many of the industry leaders even survived the change from old to new, let alone maintained their market share.

What’s super interesting is it’s not just one revolution happening. We have two revolutions going on in the transportation industry. The switch to electric, and the rise of autonomous driving. Neither of which the legacy automakers have strong backgrounds in, and will require significant investment to scale up. Most of them think they can just buy their way into the market. Buy an off the shelf autonomous suite from Waymo/etc, Or wait until batteries become cheap and plentiful like a commodity and buy to order. The problem with these strategies is. 1. By all appearances Waymo wants to control their own autonomous fleet. So they are free to buy vehicles from any supplier and drive vehicle prices down by playing suppliers off against each other. 2. Batteries will be supply constrained for many years, only those with their own manufacturing capacity, or with orders in early will get batteries. 3. You have a scrappy startup that’s now out of the start up phase charging ahead with their own technology and their own battery manufacturing, their own charging network, their own sales channel, and their own plans for global domination of the transportation as a service industry. Which means the wait… Read more »

Actually, pretty much all established car makers have their own autonomy programs, or at least ties with companies working on autonomy.

But they don’t have the EV programs. Autonomy is mostly software and software does not require retooling the majority of your factories. Even though both programs are independent of each other, the legacy car companies are not going to survive without both.

So you can #1 reinvest some current profits to developing EV’s to ensure your long term future or #2 continue to pay dividends to which in turn means that the CEO gets his fill bonus. To him/her, the future is someone else’s problem.

Most CEO’s are consistent in their choices, so we already know what they will decide.

Just curious what competitor there are talking about.
I know one everybody’s want them to fail but in fact their hurting the big ones hard. Again and again and again.

This is still somewhat confusing. After all, they are already producing EVs today. And I’m sure they will be producing EVs a few years from now. So what is it they are trying to say?

They are basically producing 0 EVs compared with the numbers they have to produce after 2020. They are planning to convert 16 production sites located worldwide to full EV before 2025. This all costs serious money and it needs to come from somewhere. If they can not raise their margins enough it will need to come from profit. This is what they are saying.

I think you got confused. AFAIK they only said that they want to produce EVs at 16 sites, and confirmed that *one* of them will be converted to 100% EVs by 2025.

No. That one site “Zwickau” will be the first to be converted and fully EV by 2021.

One of the reasons are (is), subject and object not in agreement.

What is the point of having so many different EVs in their portfolio? Why a customer should pay more money to Audi & Porsche than VW & Skoda? They’ll all have the same li-on batteries and the same electric motors. There will be no difference among them in the EV future.

I don’t see why it would be any different with EVs than with combustion cars…

GM has promised several dozen EV cars in the next few years and two of them are supposed to show up in the next six months or so according to what they were saying last year. There is no indication that this will happen on time and I suspect that VW will be no different.

The Bolt derivatives are surely not high priority — especially since the Bolt itself probably sells well enough to cover emission standards / ZEV mandates…

Once GM and VW have their more profitable next-gen EV platforms ready to go though, we should see them getting more serious about timely releases.

Some delays of course will still happen inevitably…

VW plans to produce 10M electric cars based on its new modular MEB platform as part of the initial global launch of worldwide mass production.

Overall, VW plans to build 27 models for four group brands based on the MEB platform.

“VW Concerned Over High Costs Of Electric Car Development ”
What a joke.

Even hobbyist can do it and some of them are crazy fast like white zombie.

How hard is it to connect batteries to a controller to a motor, I know it is oversimplified, but that is the basic idea.

They know how to make car, they can modify existing one, but for battery placement a new platform is better.

Every manufacturers build new platforms for new cars, so for their new platform it should be design for EV and adaptable for ICE car, not the other way around

Yes, they are creating a dedicated platform for their future EVs. Not sure what your point is?

It’s easy to build 10 or even 100 cars. It starts to get tricky when you have to make 1000. Just look at Magna/Jaguar and the trouble they are having ramping up the iPace.

You have hit the point, they knew they need a new platform. But they did not expect it to be that expensive. Probably they cannot reuse that many parts from MQB and that makes it more expensive.

To me it sounds like they realised they will have to invest more to make it competitive, and/or to cover bigger demand.

This sounds like it is a press release specifically targeted to regulators. It is a whine of “building electric cars is too hard, mommy” which will soon be followed by whatever they will ask from regulators.

This is not a press release. It was published in VW’s internal newsletter. There is no political agenda.

I’m saying that whatever the format, it sounds like it was intended for the press from the beginning, so it was in the public record for their lobbyist group to later use with regulators.

I would like to think I’m just being cynical. The problem is that this is a well known technique for lobbyist organizations to use, because they are trying to maintain an illusion of separation.

You are being cynical 🙂

I don’t get the impression that their primary concern is with regulations at this point…

Volkswagen Chief Executive Officer Herbert Diess said:

“The burden for our company, such as the cost of bringing to market electric cars, will be higher than expected…”
—————-

VW executive management & VW board have an important decision to make:

Simplified:

Huge upfront cost for VW if they aggressively transition to EV or a larger future cost to VW (in future loss customer base) if VW slowly transitions to EV.

Dollars spent in R&D and capital infrastructure build has a long term ROI component attached (if well spent).

Revenue loss due to loss of customer base has no ROI attachment.

The conundrum for VW executive decision makers is that the public investment market places little value in long term strategy.

Most of VW’s shares are held by Porsche SE, which is privately owned by various members of the Porsche and Piëch families. They are in for the long haul.

So much negativity here… I for one think this is a good sign: they realised that they have to step up their game not to get left behind!

They have been taking about stepping up their game for the better part of a decade now. When they actually do something, then I will be more supportive.

Clearly, they are doing something; and apparently they now see the need to do even more. Whether it will be enough, remains to be seen. But it’s going in the right direction. I don’t see why so many people here feel the need to bash them when they are showing signs of progress…

The negativity was earned by VW/Audi/Porsche. Search the archives for “Audi concept” and “VW concept”. They can’t complain about the reputation they earned for being the leader in EV concepts that never make it to market.

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