VW CEO warns of higher than expected electric car costs

Volkswagen warned that its ambitious plan to offer an electric version of each model will cost more than it estimated, forcing the world’s largest carmaker to deepen an efficiency push to meet the spending demands.

VW had originally earmarked the shift to battery power to cost 20 billion euros ($23 billion). Now Chief Executive Officer Herbert Diess says this won’t suffice, without providing a new figure. The company needs to reduce expenses to be able to invest in future technology and weather crises, he said.

“The burden for our company, such as the cost of bringing to market electric cars, will be higher than expected,” Diess said in a joint interview with labor head Bernd Osterloh in VW’s internal newsletter. “This is particularly so since some of our competitors have been making more progress.”

Record spending to develop electric cars and the need to keep up with tightening regulation on emissions is weighing on carmakers’ bottom lines. Mercedes-Benz maker Daimler, unveiling its first standalone battery car in Stockholm last week, also said its outlays for a model range of 10 fully electric cars by 2022 will be higher than an initial estimate of 10 billion euros. VW, whose Audi brand is showing off the electric e-tron crossover in San Francisco next week, plans to add some 300 plug-in hybrid and battery car versions by 2030.

Reaping Benefits

Since a 2016 landmark labor pact, the Wolfsburg-based company has started to reap benefits from reorganising its sprawling universe of 12 nameplates. The company has lifted profitability at its namesake brand, which makes up over a third of revenues, to 4.1% of sales last year, up from 1.8%.

“We need higher profits to finance our future,” said Diess. “Four percent is a minimum, 5% to 6% allow for some future investments and with 7% to 8% we’re crisis-ready.”

Volkswagen has outlined a group operating profit goal of as much as 8% of sales by 2025, which compares with a rise to 7.4% last year. For the VW brand, it’s aiming for at least 6% by then.

“VW may be about to get ambitious with its targets, or at least internally harbors greater ambition,” Arndt Ellinghorst, a London-based analyst with Evercore ISI said in a note.

“We have long called for VW to set more ambitious targets for the VW brand.”