Hedging is normally a phrase used to describe offsetting risk in a financial deal. But it’s emerging at Frankfurt as one of the major techniques deployed to help the car industry cope with the switchover to electric models – whose customer demand is as yet unclear.
In the car industry's case, the ‘hedging’ refers to keeping two models on sale to cover the same market segment – one with internal combustion engines (ICE) and one with electrified powertrains.
But it also plans to keep another Macan on a conventional platform, powered by petrol and diesel engines, on sale for markets where demand for electrification is forecast to be low.
It will be aimed at the same people who might also be expected to be in the market for a Golf. However, in many markets, the ID 3 will be too expensive and not required by legislation, so VW is also locked in to replacing its iconic Golf.
In the UK, the Golf Mk8 will go on sale in early summer, about a month before the first ID 3 models are delivered to customers. It is too risky for VW to replace the Golf with an electric model only, so it has to hedge and offer both.
However, there will still have to be a regular S-Class, a more formal and traditional luxury saloon for markets that are not ready for a pure-electric luxury saloon.
Given that model lifecycles in the car industry are usually around eight years, that’s the timescale over which consumers and the market might substantially flip towards electrification – by around 2030 – giving the industry breathing space to decide if the next generations of models can fully abandon combustion power. It’s a practical solution, but an expensive one.