Bye-Bye Diesel Volkswagen forges ahead on e-cars, committing billions to batteries

The world’s biggest carmaker seeks to put diesel and the emissions scandal behind it with ambitious targets for electric vehicles.
Electric, electric, electric.

Volkswagen made a strong argument that it is on the road to recovery after its debilitating diesel scandal, posting record profit for 2017 and mobilizing its considerable resources to develop and produce electric cars.

Its “Roadmap E” has an ambitious target of 3 million e-cars by 2025, across 80 models, 50 of which will be all-electric. To back up this plan, the world’s biggest carmaker said Tuesday it has already placed orders for €20 billion ($25 billion) in batteries to install in the cars, and plans further orders up to a total of €50 billion through 2025. The company plans to be building e-cars at 16 factories by 2022, up from just three now. By 2030, it wants to have electric versions of all 300 models.

This enthusiastic embrace of e-cars is an about-face for a carmaker that stubbornly held onto diesel engines as an environmental alternative until the emissions-cheating scandal that broke in 2015 put the lie to that claim. VW has since paid out €25 billion in claims and penalties related to the scandal. It put aside €2.6 billion for further claims last summer, and today announced another €600 million had been reserved by year end. The company hopes 2018 will be the first year without any new reserves related to the scandal, though a growing wave of lawsuits in Germany may dash those hopes.

“’Roadmap E’ is by far the most important of the Volkswagen Group’s core projects,” Chief Executive Matthias Müller said at the carmaker’s annual earnings press conference. “Over the last few months, we have pulled out all the stops to implement ‘Roadmap E’ with the necessary speed and determination.”

It's one of the largest procurement projects in the history of our industry. Matthias Müller, CEO, Volkswagen, referring to planned €50 billion purchase of batteries

The commitment to purchase €50 billion in batteries is “one of the largest procurement projects in the history of our industry,” Mr. Müller said. In securing the most important component for e-cars, VW was throwing down a gauntlet of sorts to US pioneer Tesla, which is building its own gigafactory to produce batteries, but is having trouble getting its mainstream Model 3 into mass production.

The 2017 numbers indicated VW would have ample resources to pursue its electric vehicle goals. Sales rose more than 6 percent to €230 billion, while operating profit was up 90 percent to €13.8 billion, and net profit more than doubled to €11.6 billion from €5.4 billion thanks to a billion-euro bonus from the US tax reform. Were it not for the diesel scandal and other special items, operating profit would have been €17 billion, company officials said. Net liquidity in the automotive division at the end of 2017 was €22.4 billion.

Operating return on sales across the group was 7.4 percent in 2017, masking a highly differentiated hierarchy in margins. Sportscar maker Porsche, not surprisingly, led the pack with an 18.5 percent return on sales, up from 18.0 percent the previous year. The group’s Czech unit, Skoda, reinforced its position as No. 2, however, boosting its return to 9.7 percent from 8.7 percent in 2016, pulling further ahead of Audi. The German premium brand posted an 8.4 percent return, up from 8.2 percent the previous year. The VW brand itself, by far the volume leader in the group, trailed at 4.1 percent, which nonetheless was more than double its 1.8 percent in 2016.

Company officials remained cautious about prospects for this year, forecasting operating return on sales of somewhere between 6.5 and 7.5 percent, versus 7.4 percent for 2017 and the 7.5 to 8.0 percent forecast by analysts for 2018. In a call with analysts, chief financial officer Frank Witter explained that one of the reasons for caution was the introduction of a new testing procedure for emissions. This could lead to a temporarily restricted product range, he said.

Earlier this month, Handelsblatt reported that VW is mulling an initial public offering of its Truck & Bus division, a demerger that could bring in billions more to invest in e-mobility and autonomous vehicles as the automobile industry undergoes a radical transformation. Company officials did not comment on these plans Tuesday.

But Mr. Müller concluded his prepared remarks, focused largely on e-cars, with a bit of cheerleading. “Things are really moving in the Volkswagen Group. And we have plans for much more,” the chief executive said. “We have achieved something that, only a short time ago, most people thought we could never manage: a change of course for the Volkswagen supertanker.”

Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. Handelsblatt reporter Stefan Menzel contributed to this report. To contact the author: [email protected].