VW Outlines Aggressive Turnaround With North American E-Cars by 2021

Pushing an aggressive electric car effort that aims at sales of 1 million battery-driven vehicle sales by 2025, Volkswagen has just announced that it will begin building e-vehicles in North America by 2021.

The new emphasis on electrics comes in the wake of the disastrous Dieselgate scandal that has left the reputation of one of the world’s largest automakers in tatters. To pay for the switch to electrics, VW plans to use some of the 2.5 billion euros ($2.7 billion) it will save by scrapping poorly performing conventional cars.

Aggressive Profit Expansion

The energized automaker plans an aggressive expansion of its profit margin to 6 percent by 2025.

“Over the next few years, Volkswagen will change radically,” Herbert Diess, chief of the VW brand, said in a statement Tuesday. “Very few things will stay as they are. The electric car will become the strategic core of the VW brand.”

Currently, VW builds the Jetta sedan, Golf hatchback and Beetle in its Puebla, Mexico factory. VW’s single assembly plant in the U.S. is in Chattanooga, Tenn. The Chattanooga facility currently makes a version of the Passat sedan for North America. The three-row Atlas crossover is also scheduled to be built there. “We will be significantly stepping up our activities in the U.S.A. The main focus will be on the key segments in the country, large SUVs and limousines,” Diess continued.

Volkswagen is facing a carload of challenges brought on by its self-inflicted diesel emissions scandal. It is fighting to slash expenses so it can cover the continuing drain caused by the diesel cheating. The automaker is still awaiting the completion of a criminal probe in the U.S. that could cost it billions. And, the Federal Trade Commission has yet to complete its probe into charges of false advertising. Meantime, the automaker is still facing legal challenges in Germany, France, Italy, South Korea and India, among other places. And, there are promises of new probes as a second defeat device was reportedly found recently by investigators.

Volkswagen and its powerful unions reached a landmark agreement where the automaker attained as many as 30,000 job cuts worldwide. Most of the job cuts are slated to occur outside the United States. The estimated savings of this plan is nearly 4 billion euros, or slight over $4 billion.

Major Cost Containment Plan

All of the cost-savings were part of a sweeping overhaul plan announced earlier this year. Matthias Mueller, VW’s chief executive, announced the significant changes to:

• Improve VW’s operating margin
• Increase sales of electric cars
• Create a new mobility subsidiary that will focus on ride-sharing and self-driving technology

Expenses to meet these challenges are continuing to grow even as VW faces fines and settlement costs of at least 18.2 billion. The charges also cover continuing repairs to the vehicles impacted by Dieselgate. Indeed, the number of vehicles covered by repairs is going to rise as U.S. regulators last week approved repairs to at least 60,000 of the 80,000 V-6 powerplants also affected by Dieselgate.

Cutting costs at VW is complicated. Exane BNP Paribas has estimated that VW’s productivity is at least 30 percent behind its peers. And, the automaker’s per-vehicle costs were at least 60 percent more than its closest rival Toyota during the past three years. Inflated production costs and a convoluted management structure burden the carmaker, as it struggles to attain its goals.

Sources: Bloomberg, Automotive News, Newspress