Why Volkswagen Is Betting On Electric Vehicles

Every year, the Volkswagen Group is a
top contender for the title of world’s largest automaker. The group owns not only the Volkswagen
brand for which it is named, but eleven other brands. Hailing from seven European countries,
the group sells cars, commercial vehicles and
even motorcycles. It operates 133 manufacturing plants around
the world and sells cars in 153 countries. Now this behemoth is trying to forge
a new future for itself by going electric. Just years after its
executives perpetrated what might be one of the worst examples
of corporate malfeasance in automotive history, the American people, the
EPA and their counterparts around the world have been
defrauded by Volkswagen. Opinions are divided as to how
wise Volkswagen’s bet on electric is, given that electric cars represent only
a tiny share of the global car market and face
massive infrastructural challenges. However, its sheer size and presence
across such a broad range of vehicles do suggest that if any
traditional automaker has a shot at going all in on
electric Volkswagen, is it? Volkswagen’s origins can be traced
to the engineer Ferdinand Porsche. He spearheaded the creation of what
may still be the company’s most iconic car, the type one better known
to the world as the Volkswagen Beetle. Of course, this legendary
car had a dark beginning. It was created at the behest
of Adolf Hitler, who wanted an affordable vehicle that could encourage
the widespread adoption of cars in Germany. As Hitler sought to build the fascist
utopia he had imagined in the years following World War 2, the
company rebuilt itself and began exporting its beetle first to the
rest of Europe and eventually around the world. In 1959,
seven hundred thousand Americans buy foreign cars in this one year. The car became one of the best
selling vehicles of all time with one of the longest production
runs in automotive history. It also became an icon be loved by
a wide range of buyers around the world. Some customers, particularly in
America, appreciated the cars engineering relatively small size and
superior efficiency to the large sedans Detroit automakers were
churning out in the postwar period. But in the 1970s, the
beetle began to face tougher competition from cars with new
designs that offered more interior room and trunk space. The Beetle also struggled to meet
emerging fuel economy and safety standards taking hold in the U.S.. So in the mid 1970s, VW began
introducing new vehicles, some of which it continues to sell today. Two notable examples are the Passat
sedan and the golf compact hatchback. The golf initially sold as
the rabbit in the U.S. went on to be another
extremely popular car for Volkswagen. The automaker has sold more than
35 million golfs since 1974, which Volkswagen notes works out to one golf
sold every 41 seconds for the 1976 model year. The automaker released a version of
the golf called the GPI, which became something of a legend
in its own right. The GDI is commonly thought of as
one of the world’s first so-called hot hatches and is often credited
with creating the category that now includes countless competitors. Here was a small economical car
with a powerful engine that became popular with enthusiasts and in
racing, increasingly faced with competition from low priced and
highly reliable cars from Japanese manufacturers. The Volkswagen brand
distinguished itself as a relatively affordable brand with a
German pedigree and technical excellence. But over time, Volkswagen went
from being a brand to an automotive empire. The company now owns a large stable
of names that operate in markets all over the world and sell cars
at every price point from the very low end to almost unbelievably
expensive super cars costing several million dollars. Some brands such as Porsche were
developed by Volkswagen or by members of its founding
Porsche and Peak Families. Many others were acquired, such
as Audi, Lamborghini, Bugatti and Bentley. Key to managing such a
vast and diverse empire has been Volkswagen’s ability to design very
flexible platforms that can be used across such a
wide range of vehicles. What’s happened in the
more recent years? It’s really contributed to their not
just growth, but their cost effectiveness is these new platforms,
these global platforms that they’ve created where they can build
so many vehicles, not just for one or two, but for many of
their brands off of a starting point. That’s the exact same between the
front wheel hub and about the dashboard or firewall
is the vehicle. The company delivered ten point
eighty three million vehicles around the world in 2018,
including heavy commercial trucks. That makes it the biggest seller
of light and heavy vehicles combined. By comparison, the Renault
Nissan Mitsubishi Alliance sold ten point seventy six million and
Toyota Motor sold ten point five nine million. Volkswagen has been
especially successful in China, the world’s largest auto market. It had about 13 percent of the
Chinese market in 2018 and sold more units than any other automaker,
including Honda, Toyota and the Chinese company Gili. But the United States has often
been a weaker market for Volkswagen. Part of the reason why they haven’t
been as strong in the U.S. is they haven’t really penetrated
the pickup truck segment. They’ve looked at notable examples from
Japanese OEMs who have tried and failed. Also, VW Group is
really strong on the coasts. They aren’t really in the
heartland of the U.S. in 2018. Volkswagen’s share of the global car
market was twelve point three percent. But the company had three
point seven percent of the U.S. market. That’s not just for
the Volkswagen brand either. It includes Porsche, Audi
and everything else. Frustrated with its small share in
the country, Volkswagen said in 2007 it was stepping up its efforts
and plan to sell 800000 vehicles a year in the U.S. by 2018. But it fell far short
of that goal in 2018. The company sold just three hundred
fifty four thousand sixty four units in the U.S.. Now the automaker is pushing more
heavily into sport utility vehicles which stand to improve its
fortunes in the United States. If current trends continue. But the company’s history has been
a story of wild swings between popularity and obscurity. Volkswagen is fascinating because they’ve
had this kind of ongoing cycle in the U.S. where they do really well and they’re
kind of dominant, like with the beetle. And then, you know, they
start shrinking and market share and they’re having trouble competing. And it looks like maybe they’re
even going to leave the market entirely. And then they decide to recommit
and they come back in and they go all in on the U.S. and then they kind of build the
brand again and it starts to accelerate and they kind
of have another contraction. I mean, that’s what happened
with the diesel gate issue. You know, five, six years ago. It’s never dull with Volkswagen. They don’t they definitely not had
a consistent experience in the U.S. market over the last 50 years. Volkswagen did distinguish itself
in the U.S. market by being one of the
only automakers to commit to passenger cars that run on diesel fuel. Historically, diesel has been far more
common in Europe, where it was long supported by
government incentives. But light vehicles that run on
diesel are unusual in the United States. Diesel power trains have
long been considered more fuel efficient than their
gasoline counterparts. And Volkswagen marketed its diesel
engines as a smarter, economical and environmental choice. But its promotion of diesel eventually
blew up in the company’s face and led to the greatest scandal
in Volkswagen’s history in 2015. Revelations began to surface that
Volkswagen had devised technology to cheat on U.S. fuel emissions tests. The company had installed devices that
were designed to detect when the cars were being tested for
fuel efficiency and alter the engines performance during tests. The engine would be tuned to
boost fuel economy and meet U.S. government standards. But in real
world conditions, the engine would revert to its default setting,
which sacrificed the required fuel economy for better performance. Volkswagen pleaded guilty to charges of
fraud in the United States and had to pay out more than
30 billion dollars in fines and other costs. Volkswagen has admitted guilt
to federal criminal charges, and that includes charges of obstruction of
justice and is paying a four point three billion dollar fine
in the emissions cheating scandal. Top executives resigned, including CEO
Martin Winterkorn, who stepped down in September of 2015. The company is still
reeling from the fallout. Winter corn and four other
top Volkswagen executives were charged with fraud in Germany
in April of 2019. But industry observers say that some good
has come out of the scandal for Volkswagen. The sheer financial burden
of the ordeal forced the automaker to cut costs and
streamline its manufacturing and operations, which ended
up improving profitability. It also pushed the company to
more fully embrace the growing movement toward electrification, something Volkswagen was
less eager to do earlier when it was
so invested in diesel. It also spurred the creation of
the Electrify America project, which is investing two billion dollars
in electric vehicle charging infrastructure and other programs
across the United States. In addition, it led Volkswagen to
throw its weight behind electric cars, which many in the industry
say improves the chances for electric cars to gain more traction
overall in the automotive market. The company said in 2019 that it
plans to sell 22 million electric vehicles by 2030. It has already been showing off
high profile examples of its electric future. The idea Krause
is a crossover vehicle. Volkswagen will manufacturer
in 2022. Also expected in 2022 is a
production version of the I.D. Buzz concept, a reworking of VW s
classic bus with an electric motor. Porsche is also getting
into the act. The Porsche taken is
an electric sports car. The company is unveiling in
2019 as of July. Porsche said it had already more
than 30000 reservations for the car and the company doubled its first
year production target from 20000 cars to 40000. The taken is regarded as a
potentially powerful challenger to Tesla’s performance oriented electric cars, which
have dominated the high end electric car market. Getting an automaker as massive and
varied as the Volkswagen Group behind electric cars could provide the
catalyst needed to make them truly mainstream alternatives
to gasoline vehicles. Still, many in the industry
express skepticism that most customers are as ready to go
electric as some automakers are. A lot of investors and the
street is somewhat negative on this, especially in Europe. They believe they’re going to
be fines, CO2 related fines. This VW is going to have to pay. They’re not sure of the
consumer demand for a visa. And they think that they’re going to
have to sell these these at a loss. Time will tell whether
the bet secures Volkswagen’s future. But if it works out, the
German automaker’s worst scandal could be remembered as the ordeal that
made VW even more powerful.