Volkswagen's 10-year plan doubles down on electric cars, cuts spending

June 16, 2016

Reeling from a scandal that has cost the automaker tens of billions already in sales and penalties, Volkswagen announced Thursday a 10-year plan staked heavily on electric cars to revive the automaker after illegally polluting diesels nearly killed it.

In a statement, Volkswagen said it was the biggest change in the company's history.

"This (plan) will require us—following the serious setback as a result of the diesel issue—to learn from mistakes made, rectify shortcomings and establish a corporate culture that is open, value-driven and rooted in integrity," CEO Matthias Müller said in a statement.

Volkswagen says it plans to make available 30 different battery-electric vehicle (BEV) models by 2025, cut its research budget and general expenses, and rely more on heavy commercial vehicles to help keep the company profitable.

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The German car company was initially slow to adopt electric cars, in part, because it invested so heavily in so-called "clean diesel." Last year, regulators announced Volkswagen had admitted its cars illegally polluted up to 40 times more nitrogen oxides than allowed since 2009, and it pulled from sale those models.

Volkswagen e-Golf Touch - 2016 Consumer Electronics Show

Volkswagen e-Golf Touch - 2016 Consumer Electronics Show

So far Volkswagen only has one all-electric car on sale in certain parts of the U.S.—the e-Golf. It also sells an e-Up! that isn't available in the U.S., and previewed last year an electric concept car called "Budd-E." Porsche said it would sell an all-electric sports car called Mission E in the next few years, and Audi has committed to an electric SUV by 2018.

The company said in Thursday's statement that it would sell between 2 million and 3 million electric cars worldwide by 2025, and that 20 to 25 percent of its revenue would be comprised from electric car sales, up from nearly non-existent today. Analysts pointed out that electric cars are hardly profitable for automakers right now.

“A move to electric vehicles might be a profitable venture in Europe, but such a move would have virtually no effect in reversing Volkswagen’s recent trend in North America in the wake of its emissions scandal," Jack Nerad, editorial director for Kelley Blue Book, said in a statement. "Further complicating this is the fact that it is nearly impossible to sell EVs at a profit in the United States.”

Accordingly, Volkswagen announced it would adjust its profitability target to only 6 or 7 percent by 2025, in part by cutting research and development budgets, along with general expenses.

"Developing, building and selling vehicles, including the related financial services, will remain essential for the Volkswagen Group going forward. However, the transformation we have initiated today will permanently change the face of our core business, ensuring that we remain a leading player over both the medium and the long term," Müller said in a statement.

In 2014, Volkswagen spent more than $13 billion on research and development—more than any other company on the planet.

Cutting the research and development could have serious and far-reaching impacts on future cars from the automaker—especially low-cost, low-margin, high-volume vehicles like Volkswagen Golf or Jetta. Volkswagen said in its statement that it would partner with regional automakers in Asia and other emerging markets to sell economy cars in those countries.

Volkswagen also said it would change its components strategy and rely on heavy commercial automakers in its portfolio such as MAN and Scania to help it stay afloat while the company pivots toward BEVs. That leaves unclear the future for other Volkswagen brands including Ducati, SEAT, and others, whose profitability to the company overall isn't as clear.

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