Volkswagen’s radical strategy: put everything on electricity

Volkswagen has set itself the goal of a possible profitable mass production of electric vehicles in the amount of 80 billion euros (91 billion us dollars) — a feat that no automaker has not even reached.

If Volkswagen realizes its ambitions to become a world leader in the field of electric vehicles, this will happen thanks to a radical and risky rate. The German giant placed a bet on 80 billion euros (91 billion us dollars) and the possibility of profitable mass production of electric vehicles — a feat that no automaker has achieved. So far, the plans of most major automakers have been one major goal: to protect profits from expensive cars with ice and to replenish their range and fleet with enough zero-emission vehicles to meet environmental standards.

Customers largely avoid electric cars because they are too expensive, can be inconvenient to charge, and don’t have enough power reserve to travel long distances.

Volkswagen decided to change its business strategy after the emissions scandal, which cost the company more than 27 billion euros in fines and damaged reputation.

Volkswagen announced plans to develop a platform for electric vehicles code-named MEB, paving the way for mass production of affordable electric vehicles.

According to industry experts, within a few months after 2015, there was a scandal with Volkswagen, competing carmakers considered diesel fraud as a “problem VW”. But since then, regulatory agencies have identified excessive emissions across the sector and eased restrictions that undermine the economic rationale for internal combustion engines, forcing automakers to rethink the entire sector.

According to analysts, the “villain” of disilicate in the coming years will probably become the largest producer of electric vehicles in the world that will give him the opportunity to lead the market, if there is high demand for the products of the company.

According to Stackmann, one of the five senior executives of Volkswagen, the decision to convert the plant in Emden (lower Saxony) for the production of electric vehicles would never have been made without diesel.

Volkswagen’s ambitions were revealed only in early 2019, when the company promised to spend 80 billion euros on the development of electric vehicles and the purchase of batteries, which overshadows the investments of competitors. The brand plans to increase the annual production of electric vehicles to 3 million by 2025 from 40,000 in 2018.

Deloitte analysts argue that regulators and legislators, not customers, dictate which vehicles can appear on the road, and the industry can produce 14 million electric vehicles that are not in demand from consumers.

VW, whose first electric car from the I. D. series will appear in showrooms in 2020, set a deadline to stop mass production of cars with ice. The latest generation of petrol and diesel vehicles will be developed by 2026.

Arndt Ellinghorst, an analyst at Evercore ISI, believes that betting on electric cars can be risky because customers don’t want to own cars dependent on public chargers. But the EU and China emission standards have made the introduction of electric vehicles inevitable.

According to top managers, another by-product of the diesel engine, which accelerated the emergence of electric vehicles VW, was cleaning the old guard of the company, which was in the center of a public and political scandal.

Diss, the Creator of BMW electric cars, was appointed CEO of Volkswagen Group, a multi-brand Empire that includes Audi, Porsche, Bentley, Seat, Skoda, Lamborghini and Ducati. These automakers could not mass-produce electric cars with benefits due to the exorbitant cost of batteries, which is between 30 and 50% of the cost of an electric car.

The battery, which provides a 500 km power reserve, costs about $20,000, while the gasoline engine costs about $5,000. Add to that $ 2,000 more for the electric motor and inverter, and the gap will be even bigger.

Even the cheapest Tesla Model 3 electric car is sold in Germany at a price of 55,400 euros, which is just below the base model of the Porsche Macan, a compact SUV. In the United States, model 3 prices start at $35,000.

VW believes that the scale of its investment will give the company an advantage in creating an electric car worth no more than its current diesel model Golf, about 20 000 euros.

The budget of the automaker for electric vehicles exceeds the budget of its closest competitor, the German Daimler, which allocated 42 billion dollars. General Motors, the No. 1 automaker in the US, said it plans to spend a total of $ 8 billion on electric cars and self-driving cars.

At the end of 2017, Renault-Nissan-Mitsubishi said that by 2022 they will spend 10 billion euros on the development of electric and Autonomous cars.

As noted by UBS analyst Patrick Hummel, in 2025 it is expected that Volkswagen will become the number one manufacturer of electric vehicles in the world, and Tesla is likely to remain a niche player.

EU legislators agreed in December to reduce carbon dioxide emissions from cars by 37.5% by 2030 compared to 2021 levels. This was after the European Union reduced emissions by 40 % between 2007 and 2021.

Strategic firm PA Consulting predicts that by 2021 VW will incur a fine of 1.4 billion euros for exceeding the average emission limits in Europe, while Ford and Fiat-Chrysler will be fined 430 million euros and 700 million euros respectively.

PA Consulting, Daimler, BMW, PSA, Mazda and Hyundai are not projected to reach their average emissions by 2021. Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover are on their way to achieving their goals.

Ford, VW and BMW have said they will achieve their climate goals thanks to the drive to sell more hybrid and electric cars in 2018.

Automakers have struggled to reduce the average emissions in their fleet due to changes in customers ‘ taste towards heavier and larger SUVs (sports SUVs) that make it difficult to maintain the same level of emissions without increasing fuel consumption and environmental pollution.

According to JATO Dynamics, SUVs are currently the most popular category of vehicles in Europe, with a market share of 34.6%. Even Porsche, which produces light sports cars, relies on SUVs with 61% of sales.

As an industry-wide extent of excess CO2 emissions have prompted Brussels to adopt tougher laws at the end of 2018, heads the VW came to the conclusion that all-electric cars are the most efficient way to achieve the goals for carbon dioxide emissions.

According to the executives, it was a point of no return when the company made the final decision to invest in electric cars and committed itself to adhere to the course it laid after the diesel.