VW Group

Jeff Schuster, President, Americas Operation & Global Vehicle Forecasting

25 April 2019

VW Group goes “all-in” on battery electric vehicles (BEVs)

At their 2019 annual media conference, Volkswagen Group announced a massive investment and initiative in e-mobility with the plan to start a new chapter and put dieselgate in the past by striving to achieve fully CO2 –neutral balance by 2050.

As the group embarks on an electrification path, its plan is focused on gaining substantial scale in BEV development and manufacturing, in a bid to meet emission regulations in most markets around the world. To put this into perspective, VW Group aims to increase the number of full BEVs available in the global market in 2028 by 40% to 70 unique models. To achieve this, the OEM expects to invest over €30 billion (US$34 billion) through to 2023.

volkswagen group

Dr Herbert Diess, Chairman of the Board of Management of Volkswagen AG – VW Group Annual Media Conference, 12 March 2019

Overlaying the group’s plan with our assumption of global model activity (allowing for some growth beyond our current visibility) shows how aggressive the target really is as VW’s share of models available for sale would more than double from 7% this year to 15% in 2028.

With the planned investment in BEV development, VW Group expects to produce up to 22 million BEVs between now and 2028, an increase on its previous estimate of 15 million for the same period. What is not clear from this statement is whether all of this volume will be from models within VW Group, or those developed in conjunction with current or future partners. Either way, it is an ambitious plan, with volume projections more than double those of our current demand-driven forecast for VW Group cumulatively by 2028. Such volume would translate to a global BEV market share of 32%, compared with our projected total Light Vehicle market share of 12% for the group. The automaker also expects 40% of its fleet in Europe and China to be electrified by 2030, versus our estimate of 1% for BEVs in 2019.

Manufacturing will need to start shifting ahead of the volume increase, such that by 2022, VW Group plans to have 18 factories in its three main markets of Europe, China and the US configured for BEV production. Eight of these plants will utilise the group’s lead platform, the Modular Electric Drive Toolkit (MEB). The Mosel plant in Germany will be the lead MEB plant, starting in 2019, and will be joined by two additional plants in Germany by 2022. The Chattanooga facility in the US will focus on North American EV build.

With battery technology being a key component in increasing range and lowering the price of BEVs, this is a strategic focal point for VW Group, hence its investment in the next generation of battery cell technology. Some battery expertise will be brought in-house and the group will examine the possibility internalising some battery cell manufacturing within Europe, highlighting the importance of battery technology in achieving its growth ambitions.

volkswagen group

Volkswagen MEB platform

In our view, there are three significant challenges to expansive industry growth consistent with Volkswagen’s strategy:

  • Battery technology – Not only does the industry need a significant increase in battery cell capacity, there really needs to be ongoing battery evolution to make BEVs competitive with internal combustion engine (ICE) vehicles. Advanced lithium technologies will help to improve energy density and thus range, but we are not expecting a major breakthrough, such as solid state batteries, before 2030. In the meantime, incremental improvements in performance and cost per kWh will also be achieved through higher production volumes, plus improved battery packaging and management techniques.
  • Charging infrastructure – Significant investment is currently being made in the major markets of China, Europe and the US. However, the absence of a charger standard used across all manufacturers means that not every location will be compatible with every vehicle. Fast-charging points can also have an additional cost and long wait times, thus adding minutes, if not hours, to a trip. Until charging is nearly as easy, fast and readily available as filling up a petrol tank, mass-market penetration will be limited.
  • Price – Price is a function of battery technology, but is also impacted by retrofitting EV technology on existing platforms not optimised for batteries or electric motors. This is something of a chicken and egg issue as price prohibits volume and lack of volume makes it difficult to reduce the price. As more investment goes into EV platforms, like MEB, design and price can be better optimised and scale become more accessible. Government incentives are another lever to reduce price for an adoption period, but, eventually, BEVs will need to be competitive without incentives.

 

In short, there is no question that VW Group’s plan is bold and aggressive. Nor is it in doubt that the group aims to lead – not follow – e-mobility globally. Given the investment other OEMs have committed to Autonomous Vehicle (AV) technology, which will not see a return for many years, taking a leadership position in e-mobility may turn out to be a wise decision.

When viewed through the prism of our current knowledge, however, it is still difficult to envisage a market capable of absorbing the number of EVs required to achieve the various regulation targets, while being consistent with VW Group’s projections, without significant advancements in the challenges outlined above.

An ‘all-in’ move of this nature is not without risk. Shifting vehicle development and manufacturing to electrification presents a considerable medium-term risk as the production footprint will be converted ahead of true demand. Only time will tell whether the plan is achievable and VW may find itself having to dial back the timeline if the market does not respond to EVs as it expects or requires.