VAG’s EV product strategy is going through significant adjustment

By Jeff Lee 2023-01-03

During 2020 and 2021, traditional automakers worldwide dished out their five, ten, and fifteen-year strategies for vehicle electrification with roughly identical crucial timings: 2025, 2030, and 2035. The first five years to develop brand-new EV platforms, the second five to expand EV sales to designated ratios, and the third to phase out ICE production and go fully electric. Of all these plans, VAG’s iconic strategy stood out for its elaboration, thoroughness, and ability to utilize and integrate multi-brands resources. However, after more than a year, VAG’s development fell behind schedule. With Chinese self-owned brands starting to overtake the group, VAG has to take immediate action.

After VAG’s new CEO, Oliver Blume, took office in September this year, an extensive evaluation of Chinese market operations and brand-new EV platform SSP’s development schedule took place. With the group’s software subsidiary CARIAD falling severely behind schedule, SSP will not be able to launch in 2025, even delaying until a rumored 2028. Under these circumstances, the current MEB platform will continue its updates, with its name changed to MEB-EVO and its assistance to VAG EVs extended from 2025 to 2030. The upgrade cost 1.5 billion Euros, upgrading battery, inverter, and electric control components’ performances, and especially applying unified cells to all new VAG EVs in the future. Looking at things objectively, SSP’s 800V high-voltage architecture is not VAG’s main focus at this moment. Additionally, VAG’s new model for direct competition with Tesla’s Model 3 will have to switch its development foundation from SSP to MEB-EVO due to the delayed alternation of EV platforms. Under such current circumstance, VAG’s product competitiveness will unlikely overtake its competitor.

Based on this information, we can identify VAG, one of the two largest auto groups worldwide, has hit a wall in developing EVs. With its 2025 product lineup transformation now out of the window, even the timing of 2026, which was brought up a few months ago, soon became unrealistic after extensive evaluations. Even if SSP's completion date postpones to 2028, Oliver Blume’s prudent decision to extend the updated MEB’s service, MEB-EVO, till 2030 still overlaps with SSP application for two years. It implies that VAG’s VW, Audi, and Porsche electrification schedules and related technologies will fall behind Chinese and Korean brands, and after 2025, the group’s global sales will suffer a severe impact. Triad (battery, electric control, motor) technology and manufacturing costs have become crucial to success in the EV age, and Chinese and Korean battery technologies and production capacity are way ahead of other countries. Adding electric controls, motors, and intelligent cabin technologies to the overall competitiveness, VAG will have a hard time competing against these two countries’ automakers. Moreover, even though VAG’s nemesis, Toyota, is slow in electrification, Toyota Hybrid’s superior fuel consumption performance will gain more breathing space and time than VAG. In my opinion, Toyota will suffer lesser market impact than VAG.

In conclusion, VAG’s product strategy and schedule announced at New Auto, the group’s strategy day a year and a half ago, did not go as planned, not to mention the closure of its autonomous driving company Argo.ai, a recent joint venture with Ford, greatly impacted the group’s future hold on autonomous driving technology developments. Despite VAG’s vast resources that could make up for its recent shortcomings, China market, its most important and profitable one, is overwhelmed by EVs starting from this year. If VAG’s car sales underperform in the Chinese market due to the group’s delayed EV development, it could mean the start of a downward spiral for VAG’s global market share.