VW shifts funding focus to software to catch Tesla

Volkswagen Group is shifting funding priorities from electric vehicles to software over the next five years to close the gap with Tesla.

The automaker's latest five-year investment plan, which is worth 150 billion euros ($178 billion), sees a big increase in spending on digital technology, while the corresponding budget for electric mobility remains almost the same.

VW is "raising the tempo" when it comes to software, since the needs in this area are greater than with electric mobility, a company source told Automotive News Europe.

This suggests VW feels comfortable with the progress of its battery-powered vehicle offensive, which analysts say is already the most ambitious among any major automaker.

By 2030, VW Group plans to produce about 26 million planned full-electric cars for its brands including the luxury Audi, Porsche and Bentley marques as well as its mass-market VW, Skoda and Seat units.

Software glitches that marred the eight-generation VW Golf roll-out earlier this year as well as continued problems getting digital functions to work in the new VW ID3 electric hatchback convinced executives that more resources were needed in the field.

This prompted a decision by VW Group's supervisory board to increase the amount of software developed in-house to 60 percent from a current 10 percent by 2025, a task now given to the new Car.Software Organisation (CSO) that became an independent subsidiary at the start of January.

Under the new five-year plan, VW is plowing substantially more money into digitalization including artificial intelligence and autonomous vehicles. Here the funding will be doubled to 27 billion euros from the previous sum proposed only a year ago.

While funds in this field are being hiked by 100 percent, the group's full-electric program will only see a 6 percent increase to 35 billion euros.

In fact, the automaker has even dialed back the number of EVs to about 70 by 2030 when a year ago it had penciled as many as 75. That leaves just 50 new models yet to come, according to a company statement, as a number have already been launched.   

"Importantly the (European) Green Deal is not reflected in the figures," the source added, explaining that the European Union's CO2 emissions reduction target for 2030 is not yet known.

The European Commission will start the discussion by June, but an impact assessment by Brussels officials suggested the auto industry should expect a 50 percent reduction over 2021.

VW Group CEO Herbert Diess has said the shift towards a digital company capable of operating millions of "mobility devices" worldwide is more challenging then the shift to electric drives as skills are required that currently do not exist in the European industry.

During a presentation at the Handelsblatt automotive summit earlier this month, Diess illustrated this point by recalling the day in early September in which he showed the ID3 to Tesla CEO Elon Musk.

"The price point with which the car goes to market impressed him. He immediately reacted with a very aggressive cost approach to the battery," Diess said, referring to Tesla Battery Day

VW still had a lot of ground to make up, in particular when it comes to continually improving the vehicles after their sold via improved software pushed to the vehicles over the air, Diess said.

"The new ID vehicles will receive the first updates next year, then we need to increase the pace," he said. "By 2023 and 2024 we want to be in the position to offer (OTA updates) to the same extent as Tesla does today."