AUDI'S BRAM SCHOT: Global markets, electrification among top priorities

Bram Schot was thrust into the role of CEO of Audi on an interim basis when his boss, Rupert Stadler, was jailed during an investigation into Stadler's role in Volkswagen AG's diesel emissions scandal. This happened just as the brand was preparing to launch its first battery-electric vehicle, the Audi e-tron. But the Dutch-born executive stepped up and got the e-tron moving. And he worked to clear a backlog of vehicles whose certification was delayed by the implementation of a new emissions and fuel-consumption testing procedure, WLTP, in Europe.

Schot's days as CEO are winding down. On Nov. 15, Volkswagen Group said that BMW executive Markus Duesmann, 50, will take the role April 1, and Schot will leave the company. Schot, 58, spoke to Automotive News Publisher Jason Stein, Automotive News Europe Associate Publisher Luca Ciferri and staff reporters Larry P. Vellequette and Christiaan Hetzner at the Frankfurt auto show in September. Here are edited excerpts.

Q: What's the single biggest challenge Audi and its dealers will face in 2020?

A: It's a combination of two things. It starts with the market — I think the market next year is a little bit more difficult. In China, I'm slightly optimistic on the premium market, but not super growth for the market in China. Europe looks stable, but the quality of the market is going down a little bit, so we see a lot of pressure. In the U.S., I would be happy to see a stable market, but everybody sees the U.S. as a promising market for the future. So if you want to grow, then it has to come from your own performance. That is, I think, one of the major issues. At the same time, you have to invest a lot. So we are investing in electrification.

We have stabilized markets, growth coming from performance, not from the market, then getting the right margin is a real issue.

We're doing well, because I'm less interested in volume and more interested in margin. That's why we're happy also to see the first good results on our transformation plan. So our [return] is around 8 percent; that looks much better than our competition.

So now, if you start making your company less dependent on volume and getting more out of lower costs and less pricing, then you can start growing your brand. And if then you get stabilizing markets, you get no performance out of growth, just performance. That then will be the challenge: finding the right balance between "Where do I put my money?" and "Where will I put my money to work?" Do I start investing more in the electrification? More in the plug-in [hybrids]? More in autonomous driving? More in the sharing? More in mobility? More on digitalization? And I think it will be a challenging year, especially on the pricing side.

Are there specific markets where it will be a challenging year on pricing?

If you look at [competitor] business models, they all depend on growth. So, if the economy is slowing down a little bit, then growth comes from performance, so competition will be tougher. When the competition gets tougher, you have to be careful on your pricing, which has an effect on the margin, and everybody needs money to invest for the future.

At the same time, you have the 2020 emission standards, so you have to put the electrification to work. And then the biggest challenge, of course, is finding the right customer groups, because, you know, the infrastructure on charging is not what we want it to be. So, it would have been fine, if that had been more rolled out in that sense. So try to persuade and convince people that an electric car could be really something for them.

Speaking of electrification, what feedback has Audi received from the rollout of the e-tron?

The feedback we get from customers driving the e-tron, 80 percent of them say, "I'm really hooked on electric now." That is extremely important, you know — not specifically e-tron or Tesla or Mercedes-Benz or whatever — but like 80 percent of the guys that get into the car say, "Shit! It is nice driving, I love it!" And then the question is, "Does it fit in my daily schedule?"

That is where charging comes in, and I think we have to make more steps there. Together with the governments in Europe, I think we would be fine, if they would help us a little bit, but it would be nice to actually extend the availability of charging points. That will be a major challenge for next year. Because, of course, if you have a lot of investments, you have pressure on margin, you want to transform, you also need the customers willing to pay. So finding the end consumer, the end customer is vital for a viable business model and electrification.

If you divide the market in two, with fleet and nonfleet, then it would be nice if we could convince people, together with all my competitors, that the electric car is something that could fit in everybody's daily life and there, charging is important. So that will be the challenge.

What is the schedule of coming electric vehicles for Audi?

We have a sportback e-tron that is coming. We introduce it in [November] in L.A., but I think it will be just over the year before we see it on the market. Then we have the [e-tron] GT. At the end of 2020, we will have 12 cars on the road, of which five are fully electric and seven are hybrids. And our current plan is by 2025, we have 30 cars on the road, which is 20 full electrics and 10 plug-in hybrids. And we would love to have 40 percent of sales in 2025 that is electrified. I think plug-ins will be playing a major role.

With respect to your comments about government assistance on charging infrastructure, do you feel that you have the ear of various governments to make that happen? Because there are some of your colleagues who say that no one is listening in Brussels.

They hear us, but the question is: Are they listening? There are countries that could do a little bit better. But in the end, I'm a guy, I'm not pointing fingers. We, as the automotive sector, also have to do our homework. So if you've still not done all your homework, then why point fingers?

What do you see happening?

Take the Netherlands. I'm a Dutch guy, so I can talk about my country. If you see the amount of charging points in the Netherlands compared to, for instance, Germany, I think you cannot compare. Why? Because we believe in [electrification], we believe in a better planet. The government had really [good] incentives, people were very, very favorable to buying an electric car. And they said, "It can only work if you also have the opportunity to charge."

It is very simple. They say, "We give you new rules. You can buy this car, we incentivize you, but then I have to make sure [you can charge]." At the same time, the Dutch are a trading country, a trading people. So they [realize there] is money in there, so there is a business model. It's not just changing from petrol/diesel to electricity. I think the electrification is a different business model in that sense. If everybody would have the speed of the Dutch guys, and the Norwegians and a few other Scandinavian countries, that would be very, very good. I think also, there is a responsibility there, because the ones that actually create those new laws, have also, to my opinion, a responsibility to help out meeting those standards. And there, we could see really more support from governments helping us get the infrastructure right.

Can you talk about Audi's response to WLTP, how much it hurt, and what you've done to fix it going forward?

We fixed it. But 2018 was very difficult. There are a lot of reasons for that, which I'm not going to talk about, but I might say I think we underestimated it a little bit. Our product portfolio was a bit too deep and too wide. So there was too much complexity in the product portfolio, which was not completely fitting to demand. So I took out 27 percent of complexity and engine and gearbox variances. As of July 1, we have 27 percent less engine and gearbox combinations — not just for the year, but took them out, period, so we can better cope with a product portfolio.

At the same time, we are better prepared. So we're not going to have these problems anymore. But if you have this problem in 2018, you get your cars later, later, later. So you have not the full spec available, then it's also difficult to make offers to customers, to fleets, whatever. So that's why we had a little bit of a slower start in 2019, because the order book was a little bit dated by that. So we're not really up to speed.

Your U.S. dealers were really hurting because they couldn't get any product.

I know. But they will get so much product, you cannot imagine. You can tell every U.S. dealer they can order or they can call me directly, no problem. But it was a very tough time. In the U.S., we had some issues. It was especially, on available data, nothing to do with WLTP, because WLTP was European, at the end of the day. But it came from the same issue, because what we did is we build up the availability of engine and gearbox combinations under European law and then actually started to do the U.S. That's what we changed; we're now actually promulgating in parallel, and not secretly one after the other. So that's what we changed. We changed processes, we changed the IT landscape, we changed responsibilities, we took out complexity. I'm very optimistic.

How do you think Americans are going to take to the rollout of electrification, if they're not in California or some dense urban environment?

I think you have yet to learn the lesson that we see in Europe. I just don't see any reason why those guys actually want to be sluggish. California is really on the forefront, but you probably also have different speeds in the U.S. But all in all? I think we know. Electrification is only working when the infrastructure is there. Everybody has to take this responsibility there. So I think that will be a lesser problem in the U.S. than we had in Europe, that's what my feeling is.