At the beginning of this decade, people were snickering up their sleeves at Elon Musk and his ridiculous commitment to making electric cars. Nobody is snickering today. The Volkswagen board has just approved a plan to invest $40 billion by 2022 to develop electric cars, autonomous cars, and other mobility solutions. One can argue that Elon Musk is the principal reason why Volkswagen is spending all that cash instead of just continuing to crank out millions of conventional Golf and Passat sedans.
Reuters reports the company will pay for the plan through cost savings throughout its current manufacturing operations and profits from selling more cars. “With the planning round now approved, we are laying the foundation for making Volkswagen the world’s No. 1 player in electric mobility by 2025,” chief executive officer Matthias Mueller told the press on November 17. The new plan is a big step forward from just two months ago when the company said it would invest $20 billion on electric cars and mobility by the year 2030.
Volkswagen has liquid assets of around €24 billion even after paying out many billions of dollars to clean up its diesel emissions cheating scandal. It says by the middle of the next decade it will offer electrified versions of all 300 models it manufacturers for various world markets. It should be noted that “electrified” does not mean “electric.” It means the powertrain for all those models will include an electric motor, which leaves the door open for hybrid and plug-in hybrid configurations.
In addition to Elon Musk, Volkswagen is also yielding to pressure from China, which has decreed that all manufacturers must sell the equivalent of 10% electric vehicles by 2019. The Chinese formula is complex, but it basically counts fully electric cars double when computing compliance with its rules.
“Investors should welcome a commitment towards more contemporary investment discipline,” said Evercore ISI analyst Arndt Ellinghorst. “So far this year, VW has made good progress, lowering both capex and cash R&D costs.” He gives the company’s stock an “outperform” rating.
Bernd Osterloh, head of Volkswagen’s works council says the new investment plan will strengthen the company 10 factories in Germany. €3 billion will be invested at the main manufacturing facility in Wolfsburg to help it get ready for the launch of the next generation Golf. A further €1 billion will be devoted to improvements to the Zwickau factory in eastern Germany which will switch to manufacturing zero emissions vehicles exclusively.
“It was long and hard bargaining to safeguard the interests of the employees but I think we can live well with the compromise,” Osterloh says.
Like all legacy automakers, Volkswagen is looking over its shoulder as Tesla continues to astound the auto industry. Last week, it dropped another bombshell when it unveiled the second generation Roadster, a $250,000 stormer that outperforms Volkswagen’s own supercar, the Bugatti Chiron that sells for $2.5 million. If some upstart can offer a car with more performance for one tenth the price, that is cause for grave concern.
The new master plan from Volkswagen assumes global sales will go from just over 10 million units last year to 12 million by 2025. It’s good to have a plan, but what its corporate executives should really be worried about is whether it will be selling any cars at all by then.