Volkswagen floats $78 billion plan to build 15 million electric vehicles

Volkswagen Group’s ambitious claim that it had procured enough batteries to power 50 million new electric vehicles (EVs) from 2020 has been watered down to an official 15 million this week.

Earlier this month, Volkswagen chief executive officer Herbert Diess publicly announced the German auto manufacturer had purchased enough batteries to handle the production of 50 million new units booked onto the group’s new MEB (modular electric drive matrix) platform.

He told a number of media outlets that the projected demand for EVs will meet the generous volumes that Volkswagen had planned to supply.

But the figure raised industry eyebrows, particularly given that Volkswagen’s sales of conventional vehicles only surpassed the 50 million mark after many years on the market.

This week, a Volkswagen spokesperson set the record straight, saying that the number quoted by Mr Deiss was a “theoretical long-term goal”.

While $78 billion had been earmarked for battery sourcing agreements to help grow Volkswagen’s EV sales, the spokesperson said the funds are likely to be used for a more conservative 15 million new vehicles, of which Volkswagen plans to sell a million annually by 2025.

Diesel fines

The mass production of EVs – and the internal rejig required to achieve those goals – will herald a new era for the manufacturing group which has been dogged by the fallout of its now infamous diesel engine emissions test scandal.

This month, the company was slapped with another hefty fine from German prosecutors, adding to the billions it has already paid since news of the scandal broke in 2015.

The latest fine – amounting to around $1.2 billion – related to failings in V6 and V8 diesel engines produced and installed by Volkswagen subsidiary Audi.

Almost five million cars across the United States and Europe were involved in the latest case involving emissions cheating, bringing Volkswagen’s total cost to date from the scandal to $44 billion.

According to Volkswagen, that amount includes fines and other penalties, payments to authorities, compensation costs and costs involved with retrofitting vehicles.

It is equivalent to 12% of Volkswagen’s annual sales in 2017 and more than its profit before special items of $26 billion for the same period.

Conscious of the possibility of more costs to come from outstanding lawsuits, Volkswagen said it would not appeal the latest fine.

Can Volkswagen make a U-turn?

Europe’s largest car-maker is not just on a journey to become trusted again – it also has its eye on the prize of becoming Europe’s largest EV production network.

In order to do that, it needs to make a sharp U-turn in public perception and the group’s chiefs believe the way to start is by making a considerable investment in the future of EVs and sustainable transport.

Volkswagen has committed a fat $69 billion spend by 2023 to develop its EV division, starting with electric cars, autonomous driving and new mobility services, as well as exploring alliances with battery partners.

Volkswagen will also re-tool its German manufacturing plants at Emden, Zwickau and Hanover to focus on mass production with a view to eventually reducing the cost of its electric models to around the same level as diesel vehicles.

An entry-level Volkswagen EV range is scheduled to go on sale in 2022, with the base model set at an approximate $30,000 price point as a direct rival to Tesla’s Model 3.

By 2025, Volkswagen plans to be producing around 50 different battery-electric models across the 12 auto brands under its umbrella, including Bentley, Porsche, Skoda and Seat.

The China syndrome

A chunk of those vehicles will be manufactured specifically for China’s growing e-car market, at a Volkswagen plant at the city of Foshan in Guangdong province.

Already a giant facility producing around 300,000 vehicles per year for a joint venture between Volkswagen and Chinese state-owned First Auto Works Group, the plant is undergoing a $2 billion, three-stage upgrade to increase its manufacturing capacity.

By 2020, the completed “mega-plant” is expected to commence production of over 600,000 EVs per year using MEB architecture.

The joint venture also plans to build and incorporate an electric vehicle battery assembly line for when the third and final stage is online by year end.

But Volkswagen’s EV offensive doesn’t end in Foshan.

At Anting, approximately 1,500km away from Foshan near Shanghai, Volkswagen is constructing a large-scale EV plant designed to build all-electric vehicles based on the MEB platform as well as the battery systems required to power them.

Peak production capacity will be 300,000 EVs per year, which Volkswagen said “could be necessary” given the sheer size of China’s car market.

It could also promote the economies of scale required to make the vehicles more affordable.

“China is our second home, and its market is set to be the biggest worldwide for electric cars,” Mr Diess said in Beijing earlier this year.

“But we need to speed up because change is getting faster, more dynamic and more ambitious, especially in China.”

EV targets

Volkswagen has long been a popular brand in China and earlier this month, the group completed 30 million deliveries into the country’s car market.

Chinese consumers are on track to buy more than one million EVs by year end on the back of a 53% growth in 2017.

The country’s leadership is driving an all-electric future, targeting two million annual EV sales by 2020 and a complete ban on conventional internal-combustion engines before 2040.