Volkswagen is throwing all its chips down on electric
Volkswagen Group seemed so confident of its grand plan for global domination in 2014. Through the sheer force of his imperious personality, Ferdinand Piech—the grandson of Ferdinand Porsche—had overhauled Germany’s quasi-nationalized carmaker into a global powerhouse of marquee brands, all micromanaged by a cliquey circle of courtiers gathered in Wolfsburg around Piech and his chief lieutenant, Martin Winterkorn. Billions had been staked on “clean diesel” as a solution to increasingly stringent carbon-dioxide standards, and VW was starting to gain traction in its tireless campaign to spread the diesel religion beyond its traditional domain in Europe. Virtually every automaker had an expansion of diesel offerings in its future plans for North America.
Then VW steamed full-speed ahead into an iceberg of its own making. The diesel scandal sent the company reeling, the tab for fines and other make-good costs now at $34 billion and counting. Piech stepped down in 2015 and died in 2019. Winterkorn departed a few months after Piech and is currently awaiting trial in Germany on fraud charges. The industry subsequently shredded its diesel plans. VW completely revamped its management structure to decentralize power and give more say to individual markets to determine their own product mix (one reason VW of America is finally fleshing out its anemic lineup of crossovers), and the company seems intent on unwinding Piech’s vaunted portfolio of luxury brands.
Croatian electric supercar maker Rimac is in talks to take Bugatti. Lamborghini is reportedly being considered for a possible public offering, much as Fiat Chrysler Automobiles (FCA) spun Ferrari off to the public markets. Another VW possession, Bentley—which has said it will be all-electric by 2030—has been absorbed by Audi, where it will share in the fruits of Audi’s so-called Artemis Project to produce new technologies for electric and autonomous vehicles. The first Artemis platform, code-named “Landjet” and due in 2024, will be a seven-seat electric flagship that will go to Audi, Bentley, and Porsche.
Volkswagen’s sudden change in course is astounding in its breadth. In its most recent five-year plan, announced this past November, VW said it will wager a staggering $87 billion on electrification and software development. The latter is deemed necessary if VW is to catch its current arch nemesis, Tesla, whose huge range numbers are partly the result of its leading battery-management software. The forthcoming Volkswagen ID.4 small crossover, the first vehicle the U.S. will see out of this electrification drive, is said to be hobbled by inadequate software such that its range at launch will be significantly less than the similarly sized Tesla Model Y.
No doubt that’s one reason VW’s market valuation hovers around $94 billion, far less than Tesla’s gobsmacking $540 billion and about half that of Toyota’s, which built fewer vehicles in 2019 than VW and appears to be behind in electrification. Indeed, investors seem a little concerned that Volkswagen is unleashing massive resources—resources only available to a colossus that built 29,652 vehicles per day in 2019—to swat Tesla, all based on potentially pie-in-the-sky projections that the world will see 26 million full-electric vehicles in production per year by 2030. That would represent more than a 12-fold increase from the 2.1 million built in 2019, with all of the associated changes to the battery supply chain and charging infrastructure needed to make it happen. If this gamble doesn’t pay off, VW may be doomed without massive intervention from the German state.
Well, you certainly can’t fault the company for a lack of commitment. Perhaps Dieselgate was a blessing in a $34 billion disguise. VW sorely needed changes, and if electrics are indeed the future, maybe an iceberg to the face is just what it took for VW to prepare for it.