Audi CEO Stadler re-confirms tough 2020 goals despite diesel scandal

Audi has no plans to adjust its key long-term goals in the aftermath of parent Volkswagen Group’s emissions-cheating scandal that has affected at least 11 million vehicles worldwide, including more than 2 million Audis.

CEO Rupert Stadler says that while Audi’s immediate priorities are to fix affected customers’ cars and settle all issues with regulators, it remains focused on increasing global annual sales to 2 million by 2020 and significantly boosting its fast-growing SUV lineup by the same year.

Stadler shared his plans with Automotive News Europe Editor Luca Ciferri during an interview at Audi’s Ingolstadt headquarters last month.

Audi sold 1.74 million vehicles last year and 1.5 million through 10 months. That success seems to make your goal of 2 million sales a year by 2020 easy to reach. Do you need a tougher target or do you fear the company’s emissions-cheating scandal will make it tougher to reach your goal?

We have to look at the global economic scenario, such as what is happening to the interest rates in the U.S. or the “new normal” in China’s growth pace. Right now, we are quite positive, so the 2020 target remains.

Your 2018 U.S. sales target is 200,000 vehicles. Could you achieve this sooner?

We are at 165,000 in the first 10 months and we are happy about our profitable growth. We could buy market share but this is not our philosophy. We try to limit our incentives, which are lower than those of our direct competitors. In the last five years, our dealers invested in big exclusive flagship stores and this will produce further growth together with our expanding model range.

What has been the effect of the emissions-cheating scandal at Audi?

We take the irregularities that have been discovered very seriously and we deeply regret that we have broken the trust of our customers and the public. We are cooperating openly and fully with all authorities. With regard to the market, the priority now is to get in touch with our loyal customers who love their product, who are really satisfied with the product despite what happened. This is our absolute priority.

How are Audi customers reacting?

I have had a lot of contact with private customers, with fleet customers and fleet owners and basically they are happy with the performance and the fuel consumption of their cars. But, of course, they want to have the certainty and confidence that their car or their fleet complies with all emissions regulations.

When did you know that Audi was affected by the problem?

Please understand that there is an ongoing investigation and I cannot answer questions like this.

Has Audi’s image been tarnished by the scandal or is it perceived to mainly be a VW brand issue?

We are all in the same boat and we all will help to solve this matter together.

What about claims in the U.S. that Audi’s 3.0-liter engines also contain manipulated software?

We are in contact with the authorities. Please understand that I cannot elaborate more on this at the moment.

What is the future for diesels?

Europe is still in love with diesel. Today close to 70 percent of our European customers choose a diesel because it is very sporty, has good torque and it is highly efficient. In the U.S. it is a different story. The American customer loves to have good torque and a long range, but with the current gasoline price, it is tough for the diesel [which on average costs 10 percent to 15 percent more per gallon than gasoline in the U.S.]. Fuel price is the biggest driver for U.S. customers. In China, regulators are trying to steer drivetrain technologies toward plug-in hybrids and battery-electric vehicles with no support for diesel.

For years, Audi had been the largest profit generator within the VW Group. Will you face more pressure to deliver profits because of the costs associated with the scandal?

It is in our own interest to have the best product in the competition and to play in the Champions League when it comes to profit margin. We are working toward it and the group knows it.

Has VW Group asked Audi for more “efficiencies,” also known as cost cuts, in the aftermath of the scandal?

If a manager believes that there is no more efficiency [that can be achieved], for sure he is wrong.

Could the scandal result in more consolidation of the global auto sector?

It would be too easy to say that more synergies are possible only if you put volumes together because the danger is that the car would become a commodity. Commoditizing will never be our intention because Audis are high-tech products. High-tech products should have a soul and a clear DNA especially in the premium segment. We will see new players entering the automotive industry. This proves that the automotive industry has a lot of sex appeal, also for newcomers. We are looking forward to these “new kids on the block” because competition is the name of the game. Of course, you need a critical mass when it comes to synergies, but as we are part of the VW Group, we already have plenty of synergies to share.

Media reports suggest that Audi could be forced to sell subsidiaries such as Lamborghini, Ducati or Italdesign Giugiaro to help cover costs associated with the emissions scandal. Is that possible?

We do not see any reason why we should be forced to sell any subsidiary.

What is more important at Audi, volume or margin?

Margin.

How much volume are you willing to lose to maintain margin?

You have to fight for a good margin and then you have to work on the right branding. Volume comes because of good preparation, which we have seen at Audi in the last 10 years. If you have the right product, good design and good technology there is a growth pattern. If you start to make volume the priority, you sacrifice either the brand value or the substance of the product or both.

In China, the overall sales volume is recovering but fewer high-priced imports are being purchased as more people choose locally built cheaper models. Does this mean that your margins there will contract?

China has taxes on imported luxury cars. This makes it difficult for imports to be as competitive as locally produced cars, which changes the mix. We have been the front-runners in terms of localization. Our competitors are following us quickly and the Chinese customers are very happy with the quality of locally built Audi models. Anyway, we are satisfied with our profitability in China, despite the tough environment. This year we started to see a weakening of the market in March followed by a bumpy road until August. September showed some good signals and, as we had already made some inventory reductions to avoid overloading our dealers, the business picked up again. We are confident that if the government decides on a “new normal” of a 6 percent to 6.5 percent [gross domestic product] growth, there would not be any problem for the Chinese automotive market.

What do mean when you say you want Audi to “raise the center of gravity” of the range?

The real premium business starts with vehicles priced above 50,000 euros, and we are preparing a true offensive in this area with products such as the new A5, A6, A7 and A8. We approved a Q8 [large SUV], which supports our move upward in pricing, bringing new, different customers into the Audi world. We will also add a battery-powered large SUV, which will arrive in 2018.

The battery-powered large SUV due in 2018 was previewed by the e-tron quattro concept. Will that be the first of many battery-electric vehicles?

We foresee more BEVs because the charging infrastructure will grow significantly in the next three to four years. The battery technology is improving substantially and the cost per kilowatt is coming down to a level where it makes sense to push [for BEVs], at least in the premium sector.

Your Q SUVs cover almost a third of Audi’s global sales now. Will the addition of the Q8 at the top of the range and the entry Q1 boost that share to half of all sales soon?

We aim for 40 percent by 2020. I think it is an ambitious target, but I have positive feelings because market and customer behaviors favor this type of vehicle.

SUVs often earn higher margins than passenger cars. Are the margins for Q models in the single or double digits?

Each product in our portfolio has to yield a certain profitability. This includes SUVs. The fascinating thing about SUVs is that customers spend more on equipment because of lifestyle and emotional aspects.

What do you expect from the new A4?

We created an outstanding product with the new A4, adding features such as the virtual cockpit and driver assistance systems that are new in the midsize segment. Therefore the new A4 will be very competitive in Europe, where the segment is developing at a slower pace because SUVs are gaining share. It also has substantial potential for growth in China and in the U.S., two markets where the midsize premium segment is still expanding.

Audi sold 104,000 A3 compact sedans in the first nine months. Are you happy?

The car has been very well received in the U.S., where we attract a lot of young customers from the universities. It also has been a success in Europe and we recently launched it in China. Worldwide, about 40 percent of our A3 customers opt for the sedan, so we are definitely happy.