VW wants more U.S. production capacity; could trade platforms with Ford

Editor's note: An earlier version of this story overstated the number of full-electric cars for which VW has booked production. The figure is 15 million by 2025.

HERNDON, Va. — The global head of Volkswagen Group says the German automaker is actively looking to add U.S. manufacturing capacity — by enlarging its sole U.S. assembly plant in Tennessee or building new — to make electric vehicles and otherwise expand its offerings to American consumers.

In an expansive, hourlong exclusive interview, Herbert Diess, who took over as CEO of Volkswagen Group in April, also said his company's ongoing discussions with Ford Motor Co. center on small commercial vehicles for Europe. But Diess said the talks between the two on-again, off-again global partners could go much further, including the possible sharing of VW's flexible EV platform and the potential use of Ford's midsize Ranger platform to replace the aging VW Amarok pickup sold outside the U.S.

Diess visited Volkswagen Group of America headquarters last week, in part for a town hall meeting with employees to welcome longtime Audi boss Scott Keogh to his new role as VW's North American CEO. Keogh succeeded Hinrich Woebcken on Nov. 1.

During the interview, Diess, 60, repeatedly stressed Keogh's autonomy and decision-making power. That authority includes deciding how best to increase VW's U.S. manufacturing footprint, Diess said, as well as how to improve U.S. dealer profitability and expand VW sales in the market, as he did during his 12 years with Audi of America.

"We set up the plant in Chattanooga always with the idea to be able to grow it, to mirror it," Diess told Automotive News. "The plant is still too small, and we are considering different options — it might be electric cars, it might be a different derivative of the Atlas — it's still open. Scott will decide. We have opportunities there, and also economies of scale because it is still a bit underutilized as a facility."

VW opened its 3.4 million square-foot Tennessee plant in 2011 to initially build the Passat, then expanded it when adding production of the Atlas three-row crossover. The plant has about 3,500 workers today. VW plans to start making a two-row version of the Atlas — the Atlas Cross Sport — there in 2019.

Diess confirmed discussions with Ford, which has been an occasional partner in past decades, and spoke glowingly of strategies on which the automakers could collaborate, but he dismissed any notion of VW growing bigger through consolidations or mergers. The VW board of supervisors will consider its strategic relationship with Ford on Nov. 16, Reuters reported.

"There's nothing signed yet with Ford. We are in talks," Diess said. "Most of the talks have been centered around our light-duty vehicles — our small commercial vehicles business in Europe, where we found huge synergies. We are both relatively small in size against our peers, so what we're talking about is sharing a few platforms and manufacturing sites there, which makes sense. And within the dialogue, we are also touching other options, but this will be the main focus if we come to a conclusion."

Ford is "a strong American company," Diess said. "We have been working together already many years, in Europe and Latin America. It was a good experience for both companies when we worked together. We split up afterwards, and now there is another new business case in Europe, which makes sense for both companies. It feels good, and I hope we can conclude a case."

Former Fiat Chrysler Automobiles CEO Sergio Marchionne, convinced that industry consolidation was necessary to make more efficient use of capital, had aggressively pursued a tie-up with VW well into 2017, only to be rebuffed. Ford officials have made clear that they are not looking at any alliance with VW that would involve equity stakes.

"I wouldn't agree with Marchionne that the right step forward is to have the biggest company," Diess said, "because in such kind of uncertainty, you have to be profitable, you have to be fast, and the new scales are different from the old scales. It doesn't help you if you have as many as possible gearboxes, etc. ... It doesn't help you."

The former BMW executive, who joined VW in 2015, said VW is "open" to licensing its modular EV platform, known as MEB, to other global automakers, including Ford. Diess said VW plans to build 15 million EVs globally across its brands by 2025, and has battery sourcing agreements for them. He said licensing MEB to other automakers would lead to further economies of scale.

"Today we have hundreds of different drivetrains in our industry, and there's a lot of differentiation in the drivetrain. I think this will become less, because the battery cells will become very similar on the basis of the same chemistry inside," Diess said. "It will be more about the economies of scale. Still, the battery pack, for the foreseeable future, will be more expensive than a combustion powertrain, so I think it makes a lot of sense to make more volume and generate economies of scale."

Diess said Ford could provide VW with a global successor to its Amarok pickup, the only body-on-frame light vehicle left among the German automaker's 300-plus nameplates. But he said it would be up to Keogh to decide whether to give U.S. dealerships a small body-on-frame pickup based on the Ford Ranger or a unibody pickup that would closely follow the Tanoak concept VW unveiled in March at the New York auto show.

"It's up to Scott," Diess said. "If the Ford relationship works out well, we would have an Amarok successor, which would be then appropriate for sales worldwide — potentially as well for the United States. The other option is a unibody pickup, which is something for America, which is probably still a bit risky. On the other hand, you have to see that most of the SUVs have been transitioned in the last 20 years" to unibody construction. "I think, at some stage in the [midsize] pickups, the same thing will happen. ... I think unibody might make sense."