VW Group Components was formed in January after a carve-out process that took more than three years to complete. It now incorporates nearly 80,000 employees across 47 global locations building everything from driveshafts and dampers to front axles and steering columns.
Traditionally, the parts arm's main task was manufacturing more than 10 million combustion engines and transmissions a year. But as VW shifts to electric powertrains, that volume will have to be completely wound down by around 2040 — without causing a sustained hit to earnings.
According to sources, VW Group Components earns, on average, an operating margin of 4 to 5 percent, depending on the product. A tenth of its work force is slated to be eliminated in the next four years to protect that profitability. But a labor pact in Germany means layoffs at its high-wage sites in the country are not an option through the next decade.
Schmall declined to confirm VW Group Components' margin but said his aim remains to achieve the strategic target margin set by his bosses: 6 percent.
While he predicted suppliers making the shift to EVs would find it difficult to boost returns to more than 10 percent, he said VW could rely on growing volumes to help it through the transition.
"By 2025, our site in Kassel plans to manufacture up to 1 million electric drivetrains, making us one of the largest suppliers in the market. With those kinds of volumes, you shape the global competitive landscape," Schmall said.
The VW manager plans to invest about $3.96 billion through 2023 in the business's EV component operations, but that means funds will be limited elsewhere. To address that challenge, he made a deal to combine VW's conventional steering business with Japan's NSK to share costs. This will allow the operation to focus on the steer-by-wire technology needed to address another megatrend: the move toward self-driving cars.