After launching the MEB platform (Modularer E-Antriebs Baukasten, or Modular Electric Drive Kit), which was designed specifically for electric vehicles, the Volkswagen Group has released a series of BEVs across its brands, including Volkswagen's ID.3, ID.4, ID.5, ID.6, and ID.7, Škoda's Enyaq, and Audi's Q4 e-tron. The MEB platform can accommodate two battery packs (58 kWh and 77 kWh) and be designed with single or dual front- and rear-axle motors. In addition to the company's own brands, Ford has also partnered with the company to use the MEB platform. Ford's latest Explorer SUV is built on the MEB platform, and an SUV Coupe derivative is also planned for launch.
Besdies developing BEV platforms to accelerate product development, Volkswagen is investing heavily in manufacturing. The Group has invested around €2.2 billion to revamp its Zwickau and Emden sites, which will be able to produce 330,000 and 300,000 units per year respectively, making them Europe's largest BEV plants and among the industry's most advanced EV plants. Volkswagen is also planning to build a new electric car plant near its headquarters in Wolfsburg to produce the Trinity premium sedan, aiming to narrow the gap with Tesla's production technology. The plant will have an estimated annual production capacity of 250,000 vehicles.
However, Volkswagen faces a huge challenge to shake up Tesla, especially in terms of manufacturing technology. Two years ago, Volkswagen's Zwickau EV plant took more than 30 hours to produce a car, while Tesla's Grünheide plant near Berlin has significantly reduced the production time to around 10 hours per car. Tesla has also said that the Grünheide plant will double its production scale, meaning that annual production will double from 500,000 to 1 million vehicles. Judging from the two companies' production plans, it is not hard to envision Volkswagen will face more pressure on its manufacturing costs, not to mention the challenges posed by the always strong German metal union in the transformation of its traditional gasoline car plants.
The Volkswagen Group's EV transformation strategy outlined above was promoted by former CEO Herbert Diess, poached from BMW. However, after the Supervisory Board meeting on July 22, 2022, he left the Volkswagen Group at the end of August of the same year, and former Porsche CEO Oliver Blume took over as CEO. Under Blume's leadership, there have been some changes to the company's EV plans. For example, the Trinity is no longer a luxury car in the "10-point plan" that he unveiled at the press conference after he was appointed CEO of the Volkswagen Group, and the construction of a new electric car plant near Wolfsburg may have been put on hold. These changes have led to some doubts in the market about whether Volkswagen will be able to achieve its ambitious EV goals. The company has set a target of producing 1.5 million electric vehicles by 2025 and achieving a 50% share of electric vehicle sales by 2030.
In the first half of 2023, however, of the 4.1 million electric vehicles sold globally, the Volkswagen Group's market share declined from 7.9% in 2022 to 7.6% (about 311,000 units). On the contrary, Tesla's market share grew from 18.2% to 21.7% (about 888,000 units), and BYD's market share grew from 12.6% to 15% (about 615,000 units). This means that the gap between Volkswagen, despite remaining in third place, and the top two EV makers has widened. Other automakers, such as Geely-Volvo and SAIC, are coveting bigger market share. These companies are not only growing rapidly in the Chinese market, but they are also beginning to make inroads in overseas markets. This shows that the Volkswagen Group no longer has time to hesitate in the current electrification process.
Conversely, the Volkswagen brand has lost its top spot in sales in the largest market, China. The main reason is that in the electric car sales bottleneck, its most important products, the ID.4 and ID.4 CROZZ, combined for sales of about 25,000 units in the first half of 2023. During the same period, China's electric vehicles sold 1,995,000 units. The 10th-ranked electric vehicle, the BYD Han, sold about 50,000 units. Volkswagen's main pure electric car sold even less than half of that.
In current CEO Oliver Blume's "10-point plan", solving the problem of declining sales in China's market is ranked No. 3, which is obviously not the most pressing problem at present. To speed up the development of new vehicles and improve its position in the electric car market, Audi, a member of the Volkswagen Group, has already started to negotiate with its partner SAIC about cooperation on the electric car platform. It is unclear whether this move is a result of the Group's strategy of leaving the Volkswagen brand to fend for itself in China, but it is certain that the Volkswagen Group's current EV offerings are not competitive in China, and that the company needs to introduce new, attention-grabbing products faster to regain its declining share of the Chinese market.
As for the EU market, the Volkswagen Group's EVs are experiencing difficulties not only due to labor union pressure and high manufacturing costs, but also due to the current distribution strategy.
Volkswagen's EV channel strategy in Germany differs from that of GM and Ford in the U.S. in two key ways. First, Volkswagen is using a buyout strategy to drive dealers out of the market who are unwilling to invest in EV facilities. This is a more aggressive approach than GM and Ford's willingness survey, which gives dealers the option of investing in EV-related facilities to gain the right to sell EVs. Dealers who choose not to invest in EV facilities will only be able to sell gasoline models, which will eventually be phased out as electrification progresses. Second, Volkswagen introduced an enhanced online sales service in Germany last April, allowing consumers to lease new vehicles (electric models only) directly from the Volkswagen website. The entire process, from configuring the vehicle and choosing a lease option to conducting digital authentication and signing the contract, can be completed on a PC, tablet, or smartphone.
Volkswagen's approach to selling electric vehicles is partly similar to Tesla's direct sales model, and it has led to a subtle change in the role of the dealer, as Volkswagen introduced a different sales model when it launched its purely electric I.D. series a few years ago. In the past, the dealer was responsible for buying inventory from the factory and then selling it to consumers. However, with the I.D. series, Volkswagen bears the inventory risk. This is like a "consignment" model for the dealer, in which the inventory pressure can be reduced. However, it can also lead to dealers being less incentivized to sell electric vehicles. This is especially true given that dealers must still bear the inventory pressure of gasoline models, and that Tesla has recently reduced prices. As a result, Volkswagen produced about 97,000 I.D. series EVs in Europe from January to May this year, but only sold 73,000, leaving nearly a quarter of its inventory unsold.
Considering the challenges of product development and distribution channel transformation, Volkswagen leadership must face serious challenges in the next few years, including controlling the cost of electric vehicles more effectively, accelerating the launch of new EV products, planning its sales channels better, and reaching a better consensus with dealers.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.