VW Plots Tesla Attack with Four Affordable Electric Vehicles

VW Plots Tesla Attack with Four Affordable Electric Vehicles

April 18, 2017
Electric models are a cornerstone of Volkswagen’s effort to emerge from its diesel-cheating scandal and comply with tightening emission regulations across the globe.

Volkswagen AG  (IW 1000/8) is gearing up to take on Tesla Inc. with its namesake brand planning to roll out four affordable electric vehicles in the coming years and the Audi unit debuting an upscale battery-powered crossover it aims to introduce in 2019.

To make its electric vehicles more viable, the German company has made “huge progress” in reducing production costs, Christian Senger, head of the VW marque’s electric-car project, said on April 18 in Shanghai, where the nameplate is unveiling its first battery-powered crossover. The models, which will each have I.D. in their name, will be partly developed in China and also include a mid-size sport utility vehicle, a hatchback and a sedan.

“Offering our electric cars for prices similar to combustion engine vehicles really is a game changer,” Senger said. “We’re using the need to step from combustion engine to electric cars to reinvent VW brand,” said the executive, a former developer of BMW AG’s project the battery-powered i3 car.

Electric models are a cornerstone of Volkswagen’s effort to emerge from its diesel-cheating scandal and comply with tightening emission regulations across the globe. China, the VW brand’s largest market, is playing a key role in the industry’s move beyond combustion engines, as the government has laid out ambitious targets to fight smog and is pondering quotas for carmakers to produce battery-powered vehicles.

VW’s display at the Shanghai show includes the first public presentation of the I.D. Crozz crossover concept. The model is slated to begin production in 2020. Audi, meanwhile, showed the second model of its planned electric-car line dubbed E-tron. The Sportback concept features a declining, coupe-like roofline. Audi will introduce five purely battery-powered and hybrid vehicles in China in the next five years.

Volkswagen and its venture partners in China plan rollouts of other electric models under current brands next year, and the company is ready to meet any minimum production quotas for the vehicles set by the country’s government, Volkswagen CEO Matthias Mueller said in a Bloomberg Television interview. Even with some “gloom” about the national market for premium cars amid potential purchase limits, Volkswagen still predicts growth in demand in the segment, he said.

While it has yet to make a full-year profit, Tesla has been a thorn in the side of traditional automakers and surpassed Ford Motor Co. and General Motors Co. this month to become the most valuable U.S. automaker. But costs per vehicle are still too high to make electric cars economically feasible, and global manufacturers will be forced to keep investing in both electric and conventional drivetrains for years.

The worldwide market for electric cars is forecast to grow 26% to 950,000 vehicles this year, with GM’s Chevrolet Bolt and Tesla’s Model 3 to be the best sellers, according to Frost & Sullivan estimates. Wolfsburg, Germany-based VW only sells tiny numbers of electric versions of its Golf hatchback and Up! subcompact. The division reiterated a target to deliver 1 million fully electric cars a year worldwide by 2025.

Tesla’s Test

Tesla’s Model 3, the third in its product range, is widely seen as a litmus test that will show whether the Palo Alto, Calif.-based startup can master the surging complexity that comes with higher production volumes. That contrasts with Volkswagen, which dethroned Toyota Motor Corp. as the world’s best-selling automaker last year, giving it the scale to share costs across a much higher number of cars.

The German automaker was slow to develop fully electric cars and has been prone to engineering excesses and bloated costs, which are still evident in weak profit margins at the namesake brand.

Herbert Diess, head of Volkswagen’s biggest division, has pledged to double the marque’s operating profit margin to 4% of revenue by 2020 and lift it further to 6% by 2025 despite costs for developing electric cars and automated driving features. The profit margin doesn’t include the brand’s two highly profitable Chinese joint ventures.

By Christoph Rauwald

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Licensed content from Bloomberg, copyright 2016.

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