Volkswagen’s boss plans to raise returns by doling out more autonomy to brands like Audi and Skoda, treading familiar territory to make the carmaking behemoth more nimble in tackling future challenges.
The company seeks to lift its group margin to a range of 9% to 11% by the end of the decade, compared with last year’s 8.1%. With electric cars still less profitable than their combustion-engine siblings, much of this will hinge on fixing the VW brand that’s long struggled to catch up to rivals like Stellantis.
Europe’s biggest automaker will allow its four brand groups to come up with their own roadmaps to hit cost savings and efficiency goals, VW said during an investor meeting Wednesday.
The bet is that, on their own, the likes of Audi, VW, and Skoda will cut through bloated structures and complexity that have left VW trailing EV leaders Tesla and China’s BYD.
The company presented “limited net new information on how to get to raised but credible group margins,” Societe Generale analyst Philippe Houchois wrote in a note.
“With some sense of deja vu, we are left to focus on execution while still wondering if VW Group is not just too big and complex to succeed.”
The stakes are high.
VW, while still delivering strong profits driven by its Porsche and Audi brands, has lost its sales lead in China after more than two decades. Software snafus have irked customers and delayed profit-driving models like the electric Porsche Macan and Cayenne.
VW’s mass-market and luxury vehicle groups will focus on broadening their EV lineup and cost cuts led by factory and labor efficiencies.
Despite a pledge to hone in on quality over quantity, the group is still targeting annual sales growth of 5% to 7% on average until 2027.
“It’s like in a fitness center,” Chief Executive Officer Oliver Blume said, where “everyone on the team is training, and as everybody gets fitter, so does the Volkswagen Group.”
Reaching those goals, particularly on cost savings to boost VW brand returns to a record 6.5% by 2026, Blume will need to align VW’s many factions – from the Porsche-Piech billionaire owner family to Germany’s powerful labor unions who can significantly water down any measures.
VW has also started a review of €15 billion (R306 billion) worth of strategic and financial investments with options including asset sales, Chief Financial Officer Arno Antlitz said.
He also outlined an automotive cash flow goal of between €6 billion (R122 billion) and €8 billion (R163 billion) for this year, compared with €4.8 billion (R98 billion) during 2022.
While VW realigns, the competition isn’t standing still.
Stellantis plans to start sales of the Citroen e-C3 city car priced at less than €25,000 (R510,000) from the start of next year.
VW’s ID.2, targeting around the same price level, won’t hit showrooms for another couple of years, with European carmakers struggling to come up with affordable EVs that generate sufficient returns because of high battery costs.
VW’s upcoming electric vehicle platform from 2026 is set to deliver vehicles with margins at parity with most equivalent combustion-engine models across all segments, Blume told analysts Wednesday.
To power the shift, the carmaker is trying to secure battery supplies by setting up plants in Germany, Spain, and Canada and is spending €20 billion (R408 billion) this decade to turn its one-year-old PowerCo battery unit into a behemoth with enough cell-making capacity for 3 million EVs a year.
In China, where VW is facing fiercer competition from state-backed local rivals like BYD and Nio, the carmaker targets keeping market share roughly stable at 15% – a tough task given its EVs have done poorly there.
Despite the challenges, the company retains significant investment firepower.
VW has earmarked €180 billion (R3.7 trillion) as part of a rolling five-year plan that will be spent on software, EVs, and turning around its business in China. In the medium term, the pace of spending is set to slow.
The investment ratio for the group will drop to below 11% by 2027 and to around 9% by 2030, it said.
Keyword: VW’s big plan to catch up to Tesla and China’s BYD