VW of America execs handed the keys to their own market to execute EV plan

Volkswagen of America has spent decades under the watchful gaze of its German parent in Wolfsburg, like a teenager anxious to be treated as an adult: always dependent, always being told what was best, almost always misunderstood.

No wonder there's been some angst.

But in a major milestone this month, and as a concrete sign of growing trust, VW of America was handed the equivalent of the keys to the family car.

Not only was VW's North American arm granted greater autonomy over what products to produce in the region and how to do so, but it was given resources to carry out those decisions in the form of $7.1 billion in investments over the next five years.

And those announcements came just days after top VW Group leadership in Germany turned to North America and China to shoulder more production and sales while Europe struggles through the immediate effects of the Russia-Ukraine war.

"It allows us to be faster," explained Scott Keogh, now into his fourth year as CEO of Volkswagen of America. "I think that's a lot about what the $7.1 billion [investment] is about. It will also allow us to make the decisions that are right for the market."

What might those decisions be? For starters, one might be bringing a long-speculated VW electric compact pickup to the U.S., or it might mean building a larger American version of the ID Buzz here alongside ID4 compact crossovers. Regardless of what they are, the decisions have to make business sense, Keogh said — but they are largely now his decisions to make.

"Let's call it 'the math' still needs to make sense; it's still the automotive business, so you need scale, you need efficiencies and you do a proper business case. But yes, we can do those things regionally," Keogh said.

What changed? Well, in simple terms, VW of America grew up.

After years of losing money, and after the disastrous diesel emissions scandal, VW of America had "an $800 million swing" to the good in 2021, Keogh said. Its network of 638 dealerships averaged a 4.5 percent return last year — about triple their historic industry-lagging profit margin. U.S. sales climbed 15 percent in 2021 to just more than 375,000 vehicles, 73 percent of which were more profitable crossovers instead of less profitable sedans, as had been the case in years past. U.S. market share for the VW brand was 2.5 percent, and it is likely to climb higher as production in North America increases because of microchips being diverted from Europe.

Like a teen doing their chores without being asked, those results all got noticed in Wolfsburg.

"If you look at the business in general, we were historically, let's say, a simplistic import business. Then the import business basically stayed an import business when we built plants in the region because we were basically a sales and marketing entity," Keogh said. "Over time, we've moved to take full responsibility — that includes the purchasing, it includes the engineering, it includes the production."

The $7.1 billion investment is exclusive of a needed battery plant in the U.S. — if it's not owned by VW, it would be operated by a partner under a purchasing agreement. The money will pay for overhauls of the assembly plant in Puebla, Mexico, and engine plant in Silao, Mexico, first to bolster interim internal combustion engine-related production and then to transition to electric vehicle output.

By 2030, VW of America will localize "all major design and engineering responsibilities" for "top hat" (body and interior) development of EVs for North American consumers, when, it says, it plans for 55 percent of its U.S. sales to come from EVs. That is higher than the Biden administration's goal of half of all U.S. sales consisting of zero-emission vehicles by then.

Much of VW's future EV lineup is already known: the ID4, which will begin local production at VW's Chattanooga assembly complex in the second half of 2022; the ID Buzz minivan, which will be imported from Europe beginning in 2024; a long-range sedan, called the ID Aero, arriving in 2025, and electric versions of the Atlas and Atlas Cross Sport crossovers beginning in 2026. The brand will begin phasing out internal combustion-powered vehicles after the turn of the decade.

Details of a full transition of its Mexico operations to EV production were undisclosed. The company said the overhauls of Puebla and Silao were "for the assembly of electric vehicles and components [such as e-motors] by the middle of the decade." Puebla currently assembles the Tiguan and Taos crossovers and the Jetta sedan.

Longtime dealer Jeff Williams, of Williams Volkswagen near Lansing, Mich., said having local control of product design and selection is critical for VW and its dealers. He recounted stories of executives from Germany speaking to U.S. retailers in years past and not understanding the need for cupholders, for instance, or the reluctance of Americans to fully embrace the Golf.

"This will give us the opportunity to get the products built and designed in the American market that American consumers want, as opposed to the rest of the world," Williams said. "We'll be able to get products that meet the demands of the North American market."

Longtime industry analyst Jesse Toprak, now chief analyst with Autonomy in Santa Monica, Calif., said VW's timing positions the brand to gain U.S. market share this decade.

U.S.-produced ID4s "are definitely going to make an impact in terms of U.S. market share, but the real trend for VW market share will happen with the additional products coming in," including the ID Buzz and the larger electric crossovers planned. "We can safely say that VW is ahead of some of their competitors with their investments, their understanding of the importance of EVs in the U.S. market and their product lineup due to hit in the next few years."

Toprak said the brand's executives "are now hoping that Dieselgate is behind them, and consumers in the U.S. who may have had a bad taste in their mouth from earlier may be willing to come back."