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Some Volkswagen strategists see battery-electric, diesel cost lines crossing by 2023-2025; TRANSFORM 2025+
22 November 2016
The increasing stringency of global emissions standards, both current and projected, is driving up the cost for internal combustion engines to meet those standards, although numerous technology pathways exist. (Earlier post.)
In a conversation with Green Car Congress at AutoMobility LA last week, Dr. Matthias Erb, Executive Vice President of the NA Engineering and Planning Center, Volkswagen Group of America, said that, as a result of those pressures, some strategists in the Volkswagen Group project that the cost lines between battery-electric vehicles and diesel will cross within the coming decade.
What we see in terms of emissions standards is that they are getting tougher and tougher, and it is getting more and more expensive to meet those standards. As a result, we see a cost line crossing between battery-electric vehicles and diesels. Some of the strategists in our company see that by 2023, 2025, due to the emissions standards for diesel, [diesels] are going to become really expensive. We expect that when those two lines cross, this will be the time when huge pressure comes on diesel.—Dr. Matthias Erb
Reflecting that awareness, the executive management of the Volkswagen brand has just rolled out its TRANSFORM 2025+ strategic program which will set the course for the brand over the next decade and beyond.
In addition to focusing on clearer brand positioning across the various regions and segments, the strategy calls for the brand to make massive investments in e-mobility and connectivity.
The Chairman of the Volkswagen brand Board of Management, Dr. Herbert Diess, laid out a three-phase re-orientation for the brand.
In phase 1, up to 2020, the brand will be entirely restructuring its core business and completing a transformation along the entire value stream. At the same time, the company will develop new competences.
In Phase 2, up to 2025, Volkswagen intends to take the lead in e-mobility on the basis of its regained strength as a leading, profitable volume manufacturer. The strategy in this phase aims to create a broader earnings base, for example through new mobility services.
Volkswagen also intends to play a key role in shaping the major transformation in the industry expected after 2025. The objective is to achieve a leading role in the new world of mobility by 2030.
A key element of the new strategy is positioning at the top end of the volume segment, near to the premium competitors. To date, Volkswagen has only achieved its objective of becoming “top of volume” in China and Europe. In the future, Volkswagen aims to achieve this position throughout the world through a realignment of product strategy, beginning with an SUV offensive in the first stage (e.g., the new Atlas earlier post) and the electrification wave in the second stage (e.g., the new MEB-based vehicles such as the ID, earlier post).
E-mobility offensive. Volkswagen’s e-mobility offensive—which is to result in selling one million electric cars per year by 2025—is to be financed by a number of measures including the discontinuation of certain low-volume, low-earnings conventional models and model variants. This will release funds in excess of €2.5 billion (US$2.65 billion) for e-mobility.
From 2020, we will be launching our major e-mobility offensive. As a volume manufacturer, we intend to play a key role in the breakthrough of the electric car. We are not aiming for niche products but for the heart of the automobile market.—Dr. Herbert Diess
For the North American region, this means that local production of MEB vehicles will begin in 2021. In North America, Volkswagen intends to evolve from a niche supplier into a relevant and profitable volume producer.
In China, Volkswagen intends to strengthen the “top of volume” position it has already reached. This will be achieved by an SUV offensive and by rapidly launching electric vehicles. In China, Volkswagen also aims to benefit from the potential in the strongly growing economy segment. Work has already started on the development of appropriate models. In other major markets such as India, South America and Russia, Volkswagen also intends to develop the economy segment.
Connectivity. The Volkswagen brand will develop its own digital platform. By adopting this approach, Volkswagen will be moving closer to its customers on the one hand and developing new earnings potential with a comprehensive range of services on the other hand. By 2025, Volkswagen expects to have about 80 million active users throughout the world. This would mean that the brand would have the leading digital ecosystem in the entire automotive industry. Volkswagen estimates that its sales revenue from services related to networked vehicles will reach about €1 billion per year by 2025 and expects a significant contribution to earnings from this business area.
48V and other technologies. As is the case for every high volume manufacturer, even meeting the aggressive electric vehicle sales targets of 1 million units per year by 2025 still leaves Volkswagen another 9 million or so non-electric vehicles that will need to be more efficient, but also cost effective.
Technologies such as the new Millerized engine in the updated Volkswagen Golf (earlier post) will certainly play a key role, Dr. Erb said. Another favorable option is the emergence of the 48V mild hybrid systems.
The 48V system is a valuable alternative especially for cars where it doesn’t make sense to invest a lot of money into hybridization. The 48V discussion is always interesting. You are adding costs, but you are also adding driving performance.—Dr. Matthias Erb
(In a 2015 report on the prospects for 48V automotive systems, consultancy Frost & Sullivan forecast that the Volkswagen Group will lead in this area primarily because of Audi’s 48V offering. The consultancy projects that by 2025, Volkswagen Group will have 48V volumes in excess of 1 million systems in North America and Europe combined, far exceeding its competition. Earlier post.)