VW Group strategy calls for >30 new BEVs by 2025 with annual EV sales of 2-3M units; mobility services
Volkswagen Group CEO Matthias Müller presented the company’s new new strategic plan—TOGETHER - Strategy 2025—in Wolfsburg. With regard to vehicles and drivetrains, the new strategy places special emphasis on e-mobility.
The Group is planning a broad-based initiative in this area: it intends to launch more than 30 purely battery-powered electric vehicles (BEVs) over the next ten years. The Company estimates that such vehicles could then account for around a quarter of the global passenger car market. The Volkswagen Group forecasts that its own BEV sales will be between two and three million units in 2025, equivalent to some 20 to 25 percent of the total unit sales expected at that time.
Although the electrification initiative takes center stage in the Group’s future drivetrain strategy, the combustion engine remains important, Müller said. Combustion engines will still account for around two-thirds of the new vehicles market volumes in 2030, he noted.
Volkswagen will also review and streamline its modular architectures in the context of generating profitable growth so as to reduce complexity in development and production, increase efficiency and thus make better use of the system’s economic merits.
We are streamlining our modular architectures to make even better and more disciplined use of their benefits. Let me clearly state that the architectures are the right way forward. But we were starting to try and do too many things at once. In the future, instead of twelve variants as planned, we will work with just four major architectures: one each for economy vehicles, volume models, the premium segment and sports cars. This will cut complexity significantly and increase the commercial benefits.—Matthias Müller
As part of the strategy, the Group will develop a vehicle and drivetrain portfolio that enables sustained success even under altered market conditions. Müller said that the Group will reduce the total number of model variants from the current 340 or so.
New competencies: autonomous driving, AI, batteries. A further lever for transforming the core automotive business is to develop new competencies. The Group intends independently to provide the resources necessary to address the future topic of autonomous driving and artificial intelligence. The aim is to license a competitive self-driving system (SDS) developed in-house by the end of the decade.
Cumulative investment in new autonomous mobility solutions will amount to several billion euros. We will develop the necessary expertise and are planning to hire around 1,000 additional software specialists, among other measures. While we are on this point, I am pleased to note that we are now receiving a spate of unsolicited applications from high fliers in the areas of digitalization and new mobility. Word has evidently got around that we mean business. This will give us substantial clout in this field. We need it, because we want to play a leading part in this growth market, too—without depending on outside suppliers.—Matthias Müller
In light of the rapid gains in market volume and unit sales of electric vehicles over the coming years, the Volkswagen Group will also to develop battery technology as a new competency. The Group will assess the strategic options for participating in the potential revenue stream associated with this and developing battery technology into a new Group competency.
This policy decision has already been made. After all, battery technology is the key to e-mobility. It accounts for 20 to 30 percent of value-added for fully electric vehicles. We will need 150 gigawatt hours of battery capacity by 2025 for our own e-fleet alone— which would make for a massive procurement volume. So the economic importance of this issue is plain to see. And the technological expertise would certainly be a good fit with the Volkswagen Group. We will examine in detail all strategic options for developing battery technology as a new core competency for the Volkswagen Group.
Let me make an incidental note: the fact that we are now focusing so clearly on e-mobility and battery technology does not mean that we will scale down or even suspend our work on developing fuel cells. Here, too, we intend to stay on the ball and will be ready when the time is ripe.—Matthias Müller
Mobility services as additional growth driver. The second key building block of “TOGETHER – Strategy 2025” alongside the transformation of the core business involves the establishment of a cross-brand mobility solutions business. The new unit will develop and acquire offerings tailored to customer requirements—centering on and starting with ride hailing, i.e. on-demand mobility services.
Other services such as robo-taxis, carsharing and transport on-demand will then be grouped around this nucleus. The Volkswagen Group already secured its first foothold in the ride hailing segment at the end of May, when it invested in a strategic partnership with on-demand mobility company Gett. (Earlier post.)
In a rapidly expanding market, Volkswagen’s aim is for the new mobility solutions business unit to generate sales revenue in the billions by 2025.
The Group is driving forward with digitalization across all areas and brands.
This relates firstly to operational aspects such as Industry 4.0 in our factories or digitalization in sales. Secondly, we are aiming for a further sharp increase in the rate of development across all customer-oriented digital applications. To accelerate innovation, we will be specifically harnessing outside impetus, for example, by relying to a greater extent on acquisitions and venture capital investments. As I already said on another occasion, we have rid ourselves of the illusion that we can do everything better or develop everything ourselves. For an engineering-driven company like ours, of course, that is nothing less than a paradigm shift. But there are no two ways about it: a rational investment strategy can save a lot of time and money. Investment selection will be managed centrally going forward. This is how we aim to generate maximum added value for the Group and its brands.—Matthias Müller
At the same time, the Company will rely to a greater extent than before on partnerships, acquisitions and venture capital investments. In the future, investment selection will be managed centrally so as to generate maximum added value for the Group and its brands.
Operational efficiency improvements. In total, Group-wide investments in future topics under Strategy 2025 are expected to be in the double-digit billion range. To ensure they can be financed, operational excellence is to be increased significantly across all divisions and functions.
At the Volkswagen brand in particular, the Group will thus strive to unlock the efficiency potential—which, Group management said, by industry standards is considerable. This goes for the entire value chain in the automotive business, from product development through sourcing and production to distribution.
More specifically, the Volkswagen Group is aiming for a ratio of capex to sales revenue in the automotive business of 6.0% by 2025. The efficiency of research and development expenditures is also to be significantly improved; the ratio of R&D costs to sales revenue is likewise to be reduced to 6.0%. In addition, selling, general and administrative expenses, which as a percentage of sales revenue have increased significantly in recent years, are to be reduced to under 12%. Overall, based on the figures for fiscal year 2015, the Volkswagen Group expects more efficient use of resources to generate the potential for a significant annual improvement in earnings. The individual measures at Group, brand and divisional level will be set out in greater detail in the coming months.
Additional funds for future investments can also be generated by optimizing the existing portfolio of brands and equity investments.
Financial targets. For the Group’s operating return on sales, which in 2015 stood at 6.0% before special items, the aim is an increase to between 7 and 8% by 2025. The return on capital employed in the Automotive Division is then intended to be more than 15%. The payout ratio to shareholders is to be sustained at around 30% of net profit.
Our future program ‘TOGETHER – Strategy 2025' will make the Volkswagen Group more focused, efficient, innovative, customer-driven and sustainable—and systematically geared to generating profitable growth. We aim to create lasting value for all our stakeholders. This can only be achieved together—with our employees, with and for our customers, shareholders and business partners—while being fully aware of our responsibility toward society and the environment.—Matthias Müller