Earlier this week, Volkswagen denied a story that it was running into financial problems, caused mostly, it was claimed, by the massive investment involved in rolling out its huge range of models based on the new MQB platform.
According to analysts at Morgan Stanley, the bill for the whole MQB adventure – which includes the cost of converting over 20 factories to build the new architecture – could come to as much as £70 billion. Usually, that sort of industrial investment is in the realm of military engineering projects, such as the Lockheed Martin F22 stealth fighter.
The MQB will eventually underpin around 40 different models across various VW Group brands, and the economies of scale when you are buying, say, millions of identical seat frames every year, are potentially massive.
But Germany’s Manager Magazin claimed earlier this week that VW was going to miss its planned profit margins as the company saw sales dipping in Europe and the costs of rolling out the MQB proving to be higher than expected. The magazine’s assertion was strongly challenged by VW, which said that the suggestion it would not meet its targets ‘was wrong.’ Arguably a classic non-denial denial, which could mean VW will indeed meet its profit target, but will also have to get stuck into some serious cost-cutting.
There have also been hints that Audi is a similar position as it invests heavily in MLB-evo. This new architecture is thought to be a mix of steel, aluminium and even carbonfibre that uses riveting and bonding in its construction. It will be used for the new A4 and the models above it.
With new production lines and a whole line of new components, it’s another monumental expense for the VW Group. The suggestion that Audi, without cost cutting, might also miss its profit margin targets – as the costs climb with the roll-out of its MLB-based cars – does not seem far fetched to me.
Oh, and there’s the new MSB architecture. A development of the current Porsche Panamera platform; MSB is also thought to be another mixed-materials platform and will be used by Bentley and Porsche and could also underpin the new VW Phaeton.
We’ll also gloss over the investment needed by the VW Group for any new Bugatti model and the costs involved in the new, more flexible, sports car platform being overseen by Porsche engineers.
To launch one all-new platform across 20-odd factories might be described as brave. To try and launch three or four all-new platforms across the same six or seven years might be described as something of a risk, even for a company with VW’s cash-generating abilities.
But there’s a wider point here. The premium car makers are locked into a technical weapons race with each other. Cars become ever more complex and feature-packed as they attempt to both justify premium pricing and leave struggling mass-market manufacturers behind.
To date, ever-more expensive materials, ever-more precise construction, ever-more technical content and increasing numbers of niche models have enabled premium makers to grow sales and profits at an impressive rate.
But there’s always the risk that rising costs will crash head-on into ever-more expensive content as premium car makers overreach themselves. For instance, getting bigger premium cars – which are the core profit-makers in the auto world – through ever-more stringent fuel economy regulations will be costly, whether it means lighter materials, greater electrification or a mix of both.
The German premium three (and now, perhaps, Jaguar with its £1.5bn investment in its new alumimium platform) are locked in a techno-weapons race that is running the very real risk of destroying premium margins and killing the auto industry’s Golden Goose.