UPDATED: 10/13/15 11:24 am ET - adds details
Volkswagen AG plans a shift in focus to more plug-in hybrids and electric vehicles as the company adopts diesel technology it previously eschewed for smaller models.
The company will reduce investment at its main passenger-car brand by about $1.1 billion a year and speed up an existing cost-cutting push as the impact of the diesel-emissions scandal ripples through the automaker.
The lower spending on developing new vehicles and upgrading factories amounts to a reduction of about 6 percent in outlays.
"The Volkswagen brand is repositioning itself for the future," Herbert Diess, head of the German manufacturer's largest unit, said in a statement on Tuesday. "We are creating room for forward-looking technologies by speeding up the efficiency program."
VW is under increasing financial strain following revelations last month that it rigged diesel engines to circumvent emissions regulations.
The German carmaker essentially admitted that its diesel strategy was wrong.
Pushed by Diess, who joined in July from BMW AG, VW will now adopt additives to treat diesel emissions for its vehicles in Europe and North America "as soon as possible."
The brand is now moving to the "best environmental technology" for its diesel cars, it said in the statement. Volkswagen had previously relied on catalytic converters to burn up harmful pollutants in many of its smaller models. It will now use the same technology that it uses in its bigger diesel vehicles.
That includes tanks with a urea-based solution, known as AdBlue, that binds with nitrogen oxides in exhaust. The tanks make diesel models heavier and more expensive, and they also must be refilled, making the cars less convenient to own.
VW has used selective catalytic reduction in all 2.0-liter diesel cars in the U.S. market since the 2015 model year, and in the Passat TDI since the 2012 model year.
With diesel technology under pressure, VW plans to develop standardized components for electric vehicles with ranges as far as 310 miles.
The shift includes redesigning the flagship Phaeton sedan as an all-electric model. VW hasn't decided yet where to produce the electric Phaeton, a company spokesman said.
The current model's gasoline and diesel versions, which will be axed, are assembled by hand at a glass-walled assembly facility in Dresden by technicians wearing white robes and at times white gloves.
The next-generation Phaeton is expected to hit showrooms by about 2019-20.
The VW brand will work on a new toolkit that can be used to build compact electric passenger cars and light commercial vehicles across the group, it said.
"There is a real chance for VW to even extract something positive from the diesel fiasco," said Stefan Bratzel, head of the Center of Automotive Management near Cologne.
"Funneling more resources into electric mobility gives them a credible future perspective to try to overcome this crisis."