Volkswagen Group CEO Matthias Mueller has mapped out a sweeping strategy overhaul focused on electric cars, automated driving and services such as ride-hailing in an effort to emerge from a diesel-cheating scandal that’s dominated the company for months.
“Volkswagen has always enriched the lives of millions of people all over the world with its brands and products. Our aspiration is to continue that success story and play a leading role in shaping auto-mobility for future generations, too. This will require us following the serious setback as a result of the diesel issue – to learn from mistakes made, rectify shortcomings and establish a corporate culture that is open, value-driven and rooted in integrity,” explained CEO Matthias Müller during the presentation of the new strategic direction in Wolfsburg.
“Our future program ‘TOGETHER – Strategy 2025′ will make the Volkswagen Group more focused, efficient, innovative, customer-driven and sustainable and systematically geared to generating profitable growth. We aim to create lasting value for all our stakeholders. This can only be achieved together with our employees, with and for our customers, shareholders and business partners while being fully aware of our responsibility toward society and the environment,” Müller continued.
“TOGETHER – Strategy 2025” provides the framework and compass for the Volkswagen Group’s envisioned evolution from car manufacturer into a world-leading provider of sustainable mobility. It will be fleshed out with corresponding strategies for the Group brands to be gradually elaborated over the coming months. Volkswagen will present the detailed strategic program, broken down into brands and functions and backed up with specific measures and financial targets, before the end of the year.
This also includes the Volkswagen brand’s “pact for the future”, which the Brand Board of Management and the Works Council have been working on since early June. It involves significantly increasing efficiency, productivity and profitability with the aim of safeguarding competitiveness and jobs, and financing the necessary future investments in products and locations. In light of the brand’s importance within the Volkswagen Group, it will also play a key role in achieving the Group targets.
Transformation of the core business
Today saw the presentation of the key building blocks in the new Group strategy which centers on transforming Volkswagen’s core automotive business or, to put it another way, making a fundamental realignment in readiness for the new age of mobility. For this, Volkswagen will sharpen the positioning of the Group brands and optimize the vehicle and drivetrain portfolio to focus on the most attractive and fastest-growing market segments. Furthermore, the Group’s current product portfolio of around 340 different model variants will be systematically geared to profitable growth, taking regional market and customer needs into account.
With regard to vehicles, and drivetrains, special emphasis will be place on e-mobility. The Group is planning a broad-based initiative in this area: it intends to launch more than 30 purely battery-powered electric vehicles (BEVs) over the next ten years. The Company estimates that such vehicles could then account for around a quarter of the global passenger car market. The Volkswagen Group forecasts that its own BEV sales will be between two and three million units in 2025, equivalent to some 20 to 25 percent of the total unit sales expected at that time.
Volkswagen is also to review and streamline its modular architectures in the context of generating profitable growth so as to reduce complexity in development and production, increase efficiency and thus make better use of the system’s economic merits.
The regional growth strategy already initiated in particularly attractive automotive markets is being continued. The Volkswagen Group is affirming its expansion and investment plans already announced for North America and its continued expansion program in China. In this context, the Volkswagen Group intends to tap the economy segment i.e. the segment comprising attractively-priced entry-level products that is, for instance, especially relevant for Asia by partnering with regional players. Talks in this regard are at an advanced stage.
New competencies
A further lever for transforming the core automotive business is to develop new competencies. The Group therefore intends to independently provide the resources necessary to address the future topic of autonomous driving and artificial intelligence. The aim is to license a competitive self-driving system (SDS) developed in-house by the end of the decade.
In light of the rapid gains in market volume and unit sales of electric vehicles over the coming years, the Volkswagen Group is also to develop battery technology as a new competency. The strategic options for participating in the potential revenue stream associated with this and developing battery technology into a new Group competency will be carefully examined.
Entrepreneurial mindset and approach
Transforming the core business also encompasses systematically promoting an entrepreneurial mindset and approach in the Group. Alongside gradually implementing the model line organization at the Group brands, this primarily involves realigning the components business, which currently accounts for around 67,000 employees at 26 locations worldwide. The relevant activities are to be systematically combined across all brands and strategically realigned. The Volkswagen Group hopes that realigning the components business will strengthen competitiveness, increase efficiency and make significant contributions to future topics such as the e-mobility initiative.
The Volkswagen Group will resolutely pursue the future topics in both the passenger cars and commercial vehicles segments. For its commercial vehicles business, which currently comprises the Scania, MAN and Volkswagen Commercial Vehicles brands, the Group is reaffirming its strategic goal of creating a global champion. The plan is for Volkswagen Truck & Bus, as a multi-brand provider across the cycle, to become the most profitable company in the sector, with a significant presence in all key regions of the globe. These targets are to be achieved firstly through much closer cooperation between the commercial vehicles brands and, secondly, by enhancing the group’s overall performance as well as expanding its global footprint. New business models will also play a decisive role in this. In the medium term, the business unit will increasingly evolve from a purely commercial vehicles manufacturer into a provider of intelligent transportation solutions.
Under the strategic realignment of Volkswagen, the Financial Services Division will also be a significant source of earnings for the Group and a mainstay of its brands’ success.
“Developing, building and selling vehicles, including the related financial services, will remain essential for the Volkswagen Group going forward. However, the transformation we have initiated today will permanently change the face of our core business, ensuring that we remain a leading player over both the medium and the long term. As is traditional in the Volkswagen Group, we will take a responsible, collaborative approach. Such far-reaching change as we have set out to achieve is only possible together,” said CEO Matthias Müller.
Mobility services as additional growth driver
The second key building block of “TOGETHER – Strategy 2025” alongside the transformation of the core business involves the establishment of a cross-brand mobility solutions business. The new unit will develop and acquire offerings tailored to customer requirements – centering on and starting with ride hailing, i.e. on-demand mobility services. Other services such as robotaxis, carsharing and transport on-demand will then be grouped around this nucleus. The Volkswagen Group already secured its first foothold in the ride hailing segment at the end of May, when it invested in a strategic partnership with on-demand mobility company Gett.
In a rapidly expanding market, Volkswagen’s aim is for the new mobility solutions business unit to generate sales revenue in the billions by 2025.
Both the transformation of the core business and the new Group mobility solutions unit require Volkswagen to strengthen its traditionally excellent innovation power and place it on an even broader footing. The Group is driving forward with digitalization across all areas and brands. At the same time, the Company will rely to a greater extent than before on partnerships, acquisitions and venture capital investments. In the future, investment selection will be managed centrally so as to generate maximum added value for the Group and its brands.
Meanwhile, the Volkswagen Group will stop producing more than 40 car models as part of a new strategy. VW said last Thursday it would invest billions of euros in electric cars, ride-hailing and automated driving to become a world leader in green transport by 2025 as it reshapes its business following a diesel emissions scandal.
The group overhaul would also involve ceasing production of more than 40 models. Volkswagen currently makes about 340 car models across its portfolio, which includes brands such as Audi, Skoda and Seat. A VW spokesman said, however, the number of models that would be discontinued had not been decided yet. “A decision on how many models will be phased out or ceased has not been taken yet,” he said.
