Volkswagen’s Christian Dahlheim is one of the few remaining executives to occupy an important VW Group role after CEO Herbert Diess flattened hierarchies and shifted responsibility from the group toward the brands. The former sales chief of VW’s captive financial services division now is a kind of referee, coordinating the various go-to-market strategies to prevent cannibalization and boost profits. Automotive News Europe Correspondent Christiaan Hetzner spoke with Dahlheim about the VW Group’s ambitious plans for electric vehicles.
When prebooking began for ID3 in May it took only a day for the first 10,000 reservations to be collected. The second 10,000 required a month, and it was not until the car debuted in September that you hit your target of 30,000. Can we expect sales to tail off similarly after the first wave of demand is satisfied?
You tend to see this sort of steep ramp-up in demand from early adopters, so the question is how long before a new technology finds broader mass-market acceptance. With the ID3, we have addressed two of the three main obstacles to electromobility: range and affordability, with infrastructure being the third obstacle. Don’t forget, fleet customers need EVs to meet their own CO2 sustainability targets. We expect roughly half of the ID3s will be taken by fleet customers.
These customers focus on total cost of ownership. Is this an argument that can also work with your average car buyer?
Private customers usually don’t think in terms of what a kilometer costs them in cents nor whether it makes more sense to take the subways instead of the car based on prevailing fuel prices. That, however, will change with EVs when people start to see how much less it costs to charge their vehicle at home versus filling up their tank at the fuel station — for example in countries such as France where electricity is cheaper.
Even after an EV has exceeded its useful life, it still has a valuable asset: the battery. What does that mean for residual values?
This is an important topic. With the share of leases expected to roughly double to more than 70 percent for battery-electric vehicles, a lot of these cars will end up being returned to us such that we have to sell them back into the market. Therefore, we calculate and budget necessary resources for the remarketing of EVs when they are sold. I believe we can achieve structurally higher residual values with an EV compared with a combustion car.
Why?
Roughly 4 percent of all VW Group worldwide sales next year will be EVs. When this first wave of off-lease cars are sold as used cars in three years, we expect battery-electric vehicles as a share of our overall business to have risen to roughly a tenth of volume. By extension, that means these vehicles will be entering a market where we foresee rising demand combined with a relatively low supply.
How does this impact VW’s profitability?
The better we can control that process, the higher our residual values are, the lower the incentives are and the lower our overall distribution costs are. We believe optimizing the latter will deliver a significant contribution toward reaching our margin targets.
VW’s sales chief focused on residuals, other challenges once EV makes inroads
Dahlheim's job is to ensure that profits from all VW Group brands including Audi, Skoda and Seat are optimized for the group. This means ensuring that one brand does not use excessive sales support to the detriment of others.
VW believes it has addressed two of the key hurdles to the acceptance of EVs with the ID3: range and affordability.
When VW paid 3.3 billion euros eight years ago to acquire dealer group Porsche Holding Salzburg from the Porsche and Piech families, it was criticized as a sweetheart deal. Automakers should not be investing in a downstream operation with lower structural margins. Last year it sold nearly 1 million new and used cars, and this year it took over your Portuguese importer. What importance does it play?
Beyond exclusively serving the Austrian and eastern European markets, they serve very important functions. They open up new markets for the group, such as Malaysia, Chile and Columbia, since their nimble structure and entrepreneurial savvy are particularly effective in small markets where the group is less well-suited. They also operate Porsche Informatik, which designed the Cross dealer management system that we use both internally as well as offer externally. We also benefit from learning how they manage their investments in dealerships, which they operate like an independent company, and we learn from their greater proximity to the customer. That being said, as the automaker we don’t want to invest in bricks-and-mortar retail except in very select cases. We want our partners to invest their capital in our business because it is an attractive investment.
How would you describe your job compared with the sales chiefs at brands such as VW, Skoda and Audi?
Every brand competes for the best results, so it’s my job to optimize profits across the entire group. For example, that could mean ensuring that a brand might not use excessive sales support to the detriment of others in a market where it is already strong. That’s where I step in and correct the situation. I also handle the overarching issues, such as digitalization in retail. It makes no sense for each brand to maintain its own IT system. We have synergies here in the tens of millions of euros we can leverage. But it’s not just about costs. It’s also a matter of operational speed.
Last year the changeover from the New European Driving Cycle to the WLTP homologation test led to a major disruption in supply, costing the group 1 billion euros. You warned of a potential bottleneck this year as well due to WLTP. How big of a hit did you see?
We have been much more successful in managing this, so I am confident our business won’t be disrupted in a material way. Nearly 90 percent of all engine-transmission combinations are already available to customers. The financial headwinds are negligible this year.
Next year we have the elections in the United States, and President Trump is likely to maintain pressure on the government in Beijing. Does that mean that China, your largest market, will not recover?
It’s true that the weakness is primarily a result of trade tensions with the U.S. and less related to other effects -- such as the early introduction of China 6 emission standards in certain parts of the country, for example. We don’t see a further decline, but we are forecasting a difficult 2020. In the midterm, however, we expect a recovery as the market is a structural growth story.
