VW brand plans 'massive reduction' in model complexity, engine variants

WOLFSBURG -- Volkswagen Group's core brand aims to raise its profit margin faster than previously planned despite rising investments for electric vehicles, the automaker said on Thursday.

The Volkswagen brand now aims to raise its profit margin to at least 6 percent in 2022, three years earlier than initially forecast. Most recently, the margin stood at 4 percent. VW had previously said it seeks to achieve an operating return on sales of at least 6 percent by 2025.

VW brand aims to invest more than 11 billion euros ($12.5 billion) in e-mobility, digitalization, autonomous driving and mobility services by 2023, including 9 billion euros for electric cars as it increases the number of battery-powered models to 20 by 2025 from two now.

To shoulder the investments, VW aims for bigger cost cuts than previously planned, with the productivity of its plants to rise by about 30 percent by 2025. The automaker will extend a cost savings and efficiency program at its core brand beyond 2020 and seek an additional 3 billion euros in cost savings by 2023.

The group did not reveal details about whether jobs would be affected but has ruled out forced layoffs.

“We must force the pace of our transformation and become more efficient and agile,” Ralf Brandstaetter, the VW brand’s chief operating officer, said. “What we have achieved so far is still not enough.”

There will be a "massive reduction" in the complexity of the model portfolio, VW said. In Europe, the brand will be discontinuing 25 percent of the engine-transmission variants with low customer demand in the coming model year. This will have positive effects on the complexity of production and the supply chain, VW said.

Entry level motorizations will only come with manual transmission in future and will no longer offer the option for an automatic transmission or all-wheel drive, Brandstaetter said.

The brand aims to underpin about 80 percent of its vehicle production with its flexible MQB architecture to save costs, up from 60 percent now.

The VW brand accounts for about half of the 12-brand VW Group’s global deliveries.

VW said that talks with Ford about extending a potential alliance beyond commercial vehicles continue and remain constructive. The company said it could cooperate in the area of electric and autonomous cars and that it had plans to increase the number of cars on offer to customers in the U.S. by at least two SUVs.

On Tuesday in Washington, VW CEO Herbert Diess said the company was also "considering building a second car plant" in the U.S., adding, "We are in quite advanced negotiations and dialog with Ford to really build up a global automotive alliance, which also would strengthen the American automotive industry." 

Bill Ford, executive chairman of Ford, on Tuesday said: “We haven’t gotten that granular in our talks yet, but clearly we are talking with them.”

He said the talks were going “really well” and that “the culture fit is good.”

VW will also make electric cars in the U.S. in the medium term, although no decision has been made about the production site, the automaker said at a press conference at its headquarters in Wolfsburg, Germany.

VW expects the era of the combustion car to fade away after it rolls out its next-generation gasoline and diesel cars beginning in 2026. From that point, VW will merely modify, rather than overhaul, its platforms for combustion engines.

Reuters, Bloomberg and Automotive News contributed to this report