The Volkswagen Group will spend an extra €100 million (£70m) on alternative drive technologies - including electric and hydrogen fuel cell powertrains - in 2016, it has announced.
It was also revealed that the Group will decrease spending on capitalized development costs by €1 billion (£700m) to around €12bn (£8.4bn). The announcement was made by new VW Group boss Matthias Müller at the group's Wolfsburg headquarters.
The vast majority of VW's expenditure in the next year will go on core products and development, including the next-generation Audi Q5 and Volkswagen Golf, as well as the firm's Crafter plant in Poland and the development of its new modular electric toolkit, announced last month. Around 50% of the planned expenditure will be spent in Germany, where VW has 28 sites.
Müller also went into more detail about which planned investments will either be delayed, scaled back or cancelled as the group recovers from the ongoing emissions scandal. He said that constructon of a paint shop in Mexico will be reviewed, while a new design center in Wolfsburg is being put on hold. In addition, the new all-electric Volkswagen Phaeton - initially marked for release in 2020 - will be delayed. Müller also stressed that he hoped to avoid cutting the workforce if he could.
"We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk”, said Müller. “Together with the Works Council representatives we will make every effort to keep our core workforce on board.”
VW's joint ventures in China - which together are planning expediture of around €4.4bn (£3.3bn) in 2016 - are safe from any cost cutting measures.
"We are operating in uncertain and volatile times and are responding to this”, said Müller. "We will strictly prioritise all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed.”
While it was initially understood that cuts would be made across the Volkswagen Group, Audi boss Rupert Stadler has remained defiant that investment in his brand will be protected. Speaking to Management Today, Stadler said: "There will be no reductions in budgets for future technologies. This is what we did in the wake of the world financial crisis and this is how we handle it today."
Müller's five-point recovery plan
This latest announcement comes just weeks after Müller said the company will emerge from its current emissions scandal “stronger than before”, and set out five priorities for turning the fortunes of the German manufacturer around.
Unsurprisingly, Müller says his top two priorities are to rectify those cars affected by the emissions scandal and to investigate how the installation of the so-called ‘defeat device’ became so widespread. In a statement, he said: “Our customers are at the core of everything that our 600,000 employees worldwide do. We must uncover the truth and learn from it.”
As well as investigating the matter internally, Volkswagen has also engaged an independent auditor to assess its findings. Müller has stressed that those responsible will face severe consequences.
Beyond the immediate investigation, Müller says that another of the VW Group’s top priorities will be to realign itself with a more decentralised structure. In addition to the personnel moves and group realignments already announced, Müller says that “the key point is that Group management will be decentralised to a greater extent in the future” - something designed to give the different brands in the group more independence in their own regions.
Hinting at a possible radical realignment of the brand’s future model portfolio - already known to be affected thanks to £750m in reduced spending per year - Müller said: “We will review in detail our current portfolio of more than 300 models and examine the contribution that each one makes to our earnings.”
Müller’s fourth priority is described as being ‘a realignment of the Group’s culture and management behaviour’ - with Müller noting that changes are necessary in how Volkswagen “communicates and how it handles its mistakes”. Many have been critical of how slowly VW has appeared to communicate with an apology to its customers, but Müller has stressed that “we need a culture of openness and cooperation.”
Beyond those priorities, VW is working on a new plan dubbed the new Group Strategy 2025. An evolution of the current Strategy 2018 plan, the new initiative will be unveiled in full towards the middle of next year.
Müller said: “Many people outside of Volkswagen, but also some of us, did not understand that our Strategy 2018 is about much more than production numbers. A lot of things were subordinated to the desire to be “Faster, Higher, Larger”, especially return on sales.” Instead of sheer volume, says Müller, the focus of the plan will instead be on qualitative growth.
All-electric VW Phaeton delayed
The new Volkswagen Phaeton - development of which is now being delayed - will “be the flagship of the brand’s profile over the next decade", the company says.
Volkswagen said the car will feature "a pure-electric drive with long-distance capability, connectivity and next-generation assistance systems”.
Wolfsburg insiders with knowledge of Volkswagen’s future model plans say the electric Phaeton will share its platform architecture, drive system and battery technology with the upcoming Audi Q6 e-tron – as previewed by the e-tron Quattro concept at the Frankfurt motor show.
Reduced spending at Volkswagen
Volkswagen will reduce spending by €1 billion (£750m) per year in the wake of the dieselgate emissions scandal, as well as refocusing its development plans as the firm seeks cut costs and reaffirm its environmental credentials among car buyers. VW traditionally invests around €10bn (£7.5bn) per year on research and development alone.
Among the most radical decisions is an overhaul of the VW Group’s approach to diesel engines. From now on, the group will only use modern diesel engines with selective catalytic reduction and AdBlue injection in Europe and the United States – the two regions most heavily affected by its emissions scandal.
Development and modification of the group’s standardised MQB platform will also be accelerated, with a focus on bringing a new generation of plug-in hybrid vehicles to market. VW says it wants to produce hybrids with greater range, as well as developing new mass-market electric vehicles with a range of more than 186 miles. Alongside the new models, VW will also develop a new 48V mild hybrid system and create more efficient petrol, diesel and CNG engines.
Volkswagen will also create a new modular electric toolkit – dubbed MEB - which will be used across the VW Group brands. The toolkit be used for both passenger cars and LCVs and will be designed for all vehicle and body types. VW says the MEB toolkit will allow for “particularly emotional vehicle concepts”, and will enable an all-electric range of 250-500km (155-310 miles).
Hinting that the Group is also well on the way to developing purely autonomous vehicles, the statement also says: “A new standard with regard to connectivity and driver assistance systems is to be defined.”
Additionally, Volkswagen will accelerate its current efficiency programme. Company chairman Dr. Herbert Diess said: “The Volkswagen brand is repositioning itself for the future. We are becoming more efficient, we are giving our product range and our core technologies a new focus and we are creating room for forward-looking technologies by speeding up the efficiency program.
“We are very aware that we can only implement these innovations for the future of the Volkswagen brand effectively if we succeed with our efficiency program and in giving our product range a new focus.
“We are working at top speed on these issues. The Volkswagen team has proved it stands united and is fully focused on shaping the future. We have now laid the further foundations for that."
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