Last month, Volkswagen announced Strategy ACCELERATE. It continues — or further formalizes — what the company has been saying its path into the future is. It’s about becoming a leader in software, digitalization, autonomy, and the various new business models that pop out of that.
It wants to make “software integration” and “digital customer experience” two core competencies of the Volkswagen Group conglomerate. It certainly has the scale (millions of annual vehicle sales) to spread out the costs of becoming a leader in this space and to capitalize on successes. Does it have the management, talent, and corporate structure to make these dreams come true? That’s what we’ll find out in the coming years.
“Data-based business models will tap into additional sources of income,” the company states. But it’s not clear what type of data and what type of businesses. In-car apps? Tracking drivers’ habits and likes, and selling data to other companies to try to market certain goods or services? Something else?
This is the extent of how Volkswagen is describing it for now: “Volkswagen thus aims to generate additional revenue over the service life of the vehicle through charging and energy services, through software-based functions that customers can reserve as needed, or through automated driving.
“The company will also make the structure of the vehicle portfolio much less complex. Future vehicle generations will be produced with a much small number of versions. The individual configuration will no longer be set through the hardware when the vehicle is purchased. The vehicle will have virtually everything on board and customers can add desired functions on demand at any time using the digital ecosystem in the vehicle. This will significantly reduce production complexity.”
“Volkswagen will make autonomous driving widely available by 2030,” the company adds. Without a doubt, that sounds several years too late to many readers here. Though, I think it’s safe to say that Volkswagen is not over-promising on the timeline here.
The system, Trinity, will not start coming with new Volkswagen cars until 2026. And that will be Level 2+ automated driving.
Alongside this digitalization and software chatter, the company also noted that it’s also accelerating certain electrification efforts. It wants 100% electric vehicles to achieve a greater than 70% share of the company’s sales in Europe by 2030 (double its previous target), and a greater than 50% share in China and the US.
With regards to Europe, I think Volkswagen sees that it’s clear where the market is headed and that Norway is a good preview of where the rest of Europe will be before long. Heck, fully electric vehicles hit 10.3% of automobile sales in Germany last month. I would not be surprised if the company is even thinking about 100% BEV by 2030. Once you get a train going fast or a snowball rolling down a large hill, the momentum is enormous. Volkswagen now has a good head start as a leading brand in electrification — it might want to milk that. Also keep in mind that Volvo Cars is aiming to be 100% BEV by 2030. Does Volkswagen want to be #1 or #2 (or some other number)? (Forget for a moment that Volvo Cars is much smaller, and thus more nimble.)
China is heavily dependent on what the government does. Greater than 50% is likely by 2030, but can’t predict too much when it’s not under the control of the invisible hand of the free market. Over 50% in the US? No comment — I’ve written about the US market enough this week.
In China, the plan is to bring at least one new fully electric model to market each year. “The all-wheel-drive ID.4 GTX1 will kick things off in the first half of 2021, followed by the sporty ID.51 in the second half of the year. The ID.6 X / Cross, a seven-seater electric SUV for the Chinese market, will be launched in autumn. Plans for an electric car under the ID.32 — with an entry-level price starting at €20,000 — are pushed up by two years to 2025.”
The company also talked a bit about expanding its fleet of connected/smart/networked cars and eventual plans for regular over-the-air software updates and a customer feedback loop that leads to new features. (Sound like a company that rhymes with Vesla? Of course it does, and many Tesla fans will be inclined to point out that Volkswagen is a few years behind. Various Volkswagen execs would certainly agree and have said as much, but better to get there in a few years than in a decade, or go bankrupt.)
The Cash Money
What are the financial details of all this? The company has to stay solvent, after all. Here are some noteworthy initial figures or targets (aside from one that I’m leaving for the end of the article):
- 6% operating profit by 2023
- 5% cut in fixed costs by 2023
- 5% improved factory productivity each year
- “optimize material costs by 7 percent.”
The company is just aiming to break even in the United States and South America this fiscal year, coming out of the enormous coronavirus pandemic. Sales volumes are down 15% and 30%, respectively, in those regions.
“We are stepping up the pace. In the coming years, we will change Volkswagen as never before. Now, with ACCELERATE we will give the brand’s digitalization a further push,” Ralf Brandstätter, CEO of Volkswagen, said.
Volkswagen adds: “Volkswagen is accelerating its transformation into a software-driven mobility provider. By rolling out the ACCELERATE strategy that it has just unveiled, the company will systematically prepare for the profound changes in the automotive industry in good time. Just as Volkswagen resolutely led the way with its global electric offensive, now it is also accelerating the other big issues of the future: integration of software into the vehicle and the digital customer experience will become crucial core competencies. In implementing data-based business models, the company is seeking to attract new groups of customers and tap additional sources of income. Volkswagen also will make autonomous driving available to many people before the end of the decade.”
Overall, the company is investing €16 billion into e-mobility, hybridization, and digitalization up to 2025 according to current plans.
More details can be found here.
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