Volkswagen Group warned that its ambitious plan to offer an electrified version of each model will cost more than it estimated, forcing the automaker to deepen an efficiency push to meet the spending demands.
VW had originally earmarked the shift to battery power to cost 20 billion euros ($23 billion). Now CEO Herbert Diess says this will not suffice, without providing a new figure. The company needs to reduce expenses more to be able to invest in future technology and weather crises, he said.
VW Group aims to launch 80 new EVs across its brands including Audi, Porsche, Skoda and Seat by 2025 and offer an electrified version of each of its 300 group models by 2030.
"The burden for our company, such as the cost of bringing to market electric cars, will be higher than expected," Diess said in a joint interview with labor head Bernd Osterloh in VW’s internal newsletter. "This is particularly so since some of our competitors have been making more progress."
Record spending to develop electric cars and the need to keep up with tightening regulation on emissions is weighing on the bottom lines at automakers. Daimler's Mercedes-Benz unveiled the EQC, its first standalone battery car in Stockholm last week. Daimler said its outlays for a model range of 10 full-electric cars by 2022 will be higher than an initial estimate of 10 billion euros.
VW Group's Audi brand is showing off the electric e-tron crossover in San Francisco next week.
Since a 2016 landmark labor pact, VW Group has started to reap benefits from reorganizing its sprawling universe of 12 nameplates. The company has lifted profitability at its namesake brand, which makes up over a third of revenues, to 4.1 percent of sales last year, up from 1.8 percent.
"We need higher profits to finance our future," said Diess. "Four percent is a minimum, 5 percent to 6 percent allow for some future investments and with 7 percent to 8 percent we’re crisis-ready."
Volkswagen has outlined a group operating profit goal of as much as 8 percent of sales by 2025, which compares with a rise to 7.4 percent last year. For the VW brand, it’s aiming for at least 6 percent by then.
"VW may be about to get ambitious with its targets, or at least internally harbors greater ambition," Arndt Ellinghorst, a London-based analyst with Evercore ISI said in a note. "We have long called for VW to set more ambitious targets for the VW brand."