Volkswagen is acting like a startup

Volkswagen is acting like a startup
Herbert Diess (Volkswagen) and Elon Musk (Tesla)

While most legacy automakers still dismiss Tesla’s achievements, Volkswagen currently shows more than admiration and in some ways even tries to blindly follow Tesla’s formula for success.

Tesla’s formula is simple and smart. When production capacity is low, focus on more profitable models – that can have paid software upgrades. Nowadays, this successful formula seems to be a no-brainer for startups that have limited resources, but does it make sense for the world’s biggest automaker?

Now that Volkswagen realized that it doesn’t need the electric triplets UpMiiGo to comply with mild EU emissions regulations, it can follow Tesla’s formula and focus on more profitable models made on the new MEB platform. Why wouldn’t Volkswagen follow a formula with proven success?

The difference is that with very limited resources Tesla had to follow this formula to survive, while Volkswagen is doing it just for convenience.

World’s biggest automaker has all the resources it needs to aim higher and should have electric cars in every segment, from ten million euros hypercars to affordable small cars that cost little more than 10.000 euros.

 

With the VW electric triplets out of the way, suddenly the Renault Twingo ZE and Dacia Spring seem great electric cars in the more affordable car segment. VW just did a favor to the Renault Group and leaves a door open for Chinese automakers that are eager to arrive in Europe with affordable electric cars.

 

Baojun E100 and E200 in parking lot

 

The A-segment is especially important in Europe, where many people don’t want to buy polluting ICE (Internal Combustion Engine) cars, but also can’t afford a 30.000 euros electric car. This segment is also very important for rental and carsharing services.

 

On the positive side, Volkswagen discontinuing the popular electric triplets instead of increasing production proves one thing. It’s not the customers that don’t want electric cars, it’s the legacy automakers…

 

What do you think about Volkswagen’s strategy of focusing solely on highly profitable electric cars?

 

 

More info:

https://www.electrive.com/2020/09/06/skoda-cancels-citigo-while-vw-temporarily-stops-e-up-orders/

Pedro Lima

My interest in electric transportation is mostly political. Iโ€™m tired of coups and wars for oil. My expectation is that the adoption of electric transportation will be a factor for peace and democracy all over the world.
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EVenth
EVenth
2 months ago

Im not an expert on the industry so here’s my uninformed opinion: Automakers want to transition to EVs in a controlled manner. Ideally, they want to milk their existing ICE capital and amortize ICE R&D as much as possible. They also have multi-year contracts with suppliers that they need to honor.

They have more to consider – EV powertrain removes one of the biggest USP of automakers. [Honda, BMW= sportiness], [Toyota, Hyundai = reliability], [Ford, Dodge = cheap power] etc no longer applies as all EVs can be reliable and powerful.

EV powertrain in its entirety can be developed and manufactured by non-automakers, relegating automakers to purely stamping and assemblers of cars, which puts them in a dangerous position as barrier to entry of a simple stamping and assembly plant is low.

Non-software improvements in EVs through R&D would almost entirely be battery-based as improvements in other components would be marginal. Since battery R&D is not done by automakers, they essentialy have no “R&D shield” to protect from competitors. You can see this in how Chinese automakers are making better and cheaper EVs with meager R&D budgets.

Increasing lifespan and lower replacement rates will depress new car sales, imagine every brand being a Toyota.

Software – Autonomous driving, powertrain management and monitoring. Software is a reprieve, it can act both as a differentiator and a revenue source, but lagging in software could be dangerous.

Overall, lots of things for automakers to consider before transitioning to EVs. So in my opinion, waiting and going slow is a smart decision for profitability – ride the subsidy wave and deep pockets of early adopters, get the easy profits and show your actual cards once automakers abandon subsidies and Chinese competition comes.

Pedro Lima
Pedro Lima
2 months ago
Reply to  EVenth

All your points are valid. But the world’s biggest automaker shouldn’t ignore the A-segment, as it leaves an open door for competition, especially from the Chinese automakers – that can start with the A-segment and work their way up to more profitable segments while they gain trust from customers.

With CTP cobalt-free batteries Chinese automakers currently have the technological upper hand and when they arrive to Europe they have the potential to be extremely disruptive.

Lex
Lex
2 months ago
Reply to  Pedro Lima

Are all triplets confirmed to be discontinued? Or is it extrapolation from the actual news and developments inside VW group?

Your point is valid. VW should not open the doors for competition, even when loosing money on each car. The RD costs are spent already, temporary small loss on this type of a car can’t move the needle much for VW.
If Chinese can make this profitably, why can’t VW? Chinese small cars have an advantage in massive home market, and thus RD costs and manufacturing efficiencies are spread more thin between each car. But not that it will make such a difference to VW small car segment. Even when RD cost of a new upgrade/platform(so small cars will become money maker/competitive) will not be retrieved fully. It is still cheap price to pay to stop competition entering your market.

Maybe VW is putting hopes into Renault, that they will defend this segment in Europe. Or VW wants to eventually lobby for higher import tax, or other political solution.
Maybe I am missing something?

Pedro Lima
Pedro Lima
2 months ago
Reply to  Lex

Hi Lex, I don’t think it’s official yet, but it’s pretty obvious what VW decided to do with the triplets. The waiting time is already at 16 months… Renault ZOE’s is 3 months.

Pit
Pit
2 months ago
Reply to  Lex

I think big European automakers from France and Germany have many influential friends in the European Parliament.

They donโ€™t need to be better because they could stop Chinese competition with regulations and taxes

Pedro Lima
Pedro Lima
2 months ago
Reply to  Pit

You’re probably right, they did that to Chinese solar panels.

Freddy
Freddy
2 months ago
Reply to  EVenth

There is still lot of improvement on eletric cars to be made… You just have to check Lucid and their achievements on space management, powertrain size, efficiency and performance… but automakers must invest in R&D and just not copy existing models or use “of the shelf” hardware from legacy car suppliers (like bosch or continental)…. If done correctly, there is much way for improvements… Legacy automakers just need to truly believe in this change and not keep 1 feet in ICE (or both) and 1 feet in EV’s

Just my 2 cents

Nozuka
Nozuka
2 months ago

Clearly they can’t make a profit of them, or they would continue to sell them, even after the CO2 target is reached.
VW is not a charity and i would rather have them invest the money in more EVs based on the MEB and the modified version for smaller models they are working on, instead of an outdated conversion car.

Pedro Lima
Pedro Lima
2 months ago
Reply to  Nozuka

Hi Nozuka.

Sorry, but I don’t buy the narrative that automakers are losing money with electric cars that cost twice as much as their ICE counterparts.

Remember when automakers told us that with batteries at 100 euros per kWh electric cars would cost as much as their ICE counterparts without the need of subsidies? Yet, they keep moving the goalpost…

If SKODA could sell the 5-door ICE Citigo in its domestic market (Czech Republic) with a starting price of 8.120 euros (209.900 CZK), why an electric version that costs 20.000 euros wouldn’t be profitable? Is the VW Group that incompetent in building electric cars? I don’t think so.

The VW triplets were already very profitable, but the more expensive ID.3 and ID.4 electric cars are even more.

Lex
Lex
2 months ago
Reply to  Pedro Lima

Is battery format/composition same in triplets as in MEB cars? Different platform, so probably the answer is no, in which case, it makes even less sense to discontinue triplets.

Pedro Lima
Pedro Lima
2 months ago
Reply to  Lex

MEB cars are currently using the latest pouch NCM 712 battery cells. The WV triplets are using older pouch NCM 622 battery cells. All made by LG Chem in Poland.

Michal Grabowski
Michal Grabowski
2 months ago

It’s the other way around – e-golf and triplets were start-up like aproach – they are just vw’s model s and roadster equivalent. Just different market segment. Let’s start production of ev car – low volume, not really perfect spec. Show it is possible to make them, sell them, service them. Learn how to make them properly. Then start with real volume production aka Model 3, Model Y or MEB platform.
As much as I like vw triplets, vw needs to streamline the ev production – namely – concentrate on MEB cars. And they are doing that as delivery of id.3 and production of id.4 and enyaq are starting very soon. What we need to broaden ev adoption is not striped down neighborhood EV like e-up for under 20k Euros but ID.3 like car for under 25k, and it is achiavable by scaling up, and reducing complexity of production. And btw. A-car segment is not double just yet – we can’t realy sqeeze 250-mile battery into e-up like car.
I’ll be watching closely if they are scaling up MEB family production as fast as they can though

Pedro Lima
Pedro Lima
2 months ago

Hi Michal.

We can clearly identify three very different moments and strategies for Volkswagen.

From 1 January 2007 to 23 September 2015: Martin Winterkorn was the CEO that ignored and ridiculed Tesla, he had to resign 5 years ago due to the dieselgate scandal.

From 25 September 2015 to 12 April 2018: Matthias Mรผller was the CEO that attacked Tesla every time he could.

Since 12 April 2018: Herbert Diess is the current CEO that loves Tesla and tries to follow its footsteps.

Volkswagen’s attitude evolution towards Tesla fits perfectly in the following sentence:

โ€œFirst they ignore you, then they laugh at you, then they fight you, then you win.โ€

Don’t get me wrong, Volkswagen admiring Tesla and seeing it as an inspiration is a win for the electric mobility, but the world’s biggest automaker has the resources to do a lot more than just following its footsteps. If Volkswagen is serious about electric cars it needs to have models in every segment, from hypercars to affordable city cars. Tesla’s strategy was brilliant for a North American startup, but it’s not great for a huge automaker.

By the way, there’s already +70 Ah battery cells in the PHEV2 format, meaning that Volkswagen could have put a 52 kWh battery in an e-up. But that’s not the question here, as the world’s biggest automaker, Volkswagen should have an electric car that after subsidies costs around 10.000 euros, even if it has a small battery. Otherwise Volkswagen is opening a door for Chinese automakers that have deep pockets and can first arrive with appealing electric cars in the A-segment to then expand to more profitable segments.

It reminds me the strategy of Xiaomi. Since the reputation of Chinese companies wasn’t great, it had to start with affordable products to slowly gain the trust of more demanding European and American customers, now as an established brand Xiaomi can also sell more expensive products.

Maximilian Holland
Maximilian Holland
2 months ago

Thanks for this Pedro. VW group need to focus on getting their EV costs under control so that the triplets (or similar sub โ‚ฌ20k BEVs) can give them a profit. The good news is that if they cannot do it, Renault will, PSA/Saft will, or the Chinese OEMs will. I think the Dacia Spring will be a massive hit, and will quickly make a 2nd gen with even more range.

Pedro Lima
Pedro Lima
2 months ago

Agreed.

Even with a WLTP range of 200 km, if the price is right (15.000 euros before subsidies) and the average waiting time is close to ZOE’s (3 months), the Dacia Spring can be a major success.

I’m also curious to see the new generation (expected to be electric only) of Peugeot 108 and Citroen C1. Those are cute small cars. They’ll probably share the platform with the Fiat Concept Centoventi.
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Freddy
Freddy
2 months ago
Reply to  Pedro Lima

yes…. FCA will share with PSA… as far as is known… they even stopped developing new platforms…. I don’t really know what will happen with the new 500E platform though..are they still going to market it as a 1 car platform (the ice version is still in the old platform)?!? Dont believe this will be profitable to them….

Rodri
Rodri
2 months ago

I am starting to thing that even with all the announced plans and projected sales VW is not committed at all with electrification (believe what I do, not what I say). They still go for the minimum legal requirement. The eco factor, the cool factor and public incentives are pushing up the amount of money people is willing to pay making it possible โ‚ฌ40-50k tag prices for just ok cars. Incentives should be redirected to create charging stations. Chinese segment A cars can not come soon enough.

Freddy
Freddy
2 months ago
Reply to  Rodri

same here… the ID3 is way below the Golf in terms of quality feel for consumers… is more “quirky”…why?! Haven’t they learn nothing with first Leaf or the i3? People don’t want “funny cars”, they want good looking well made cars….

Blablubb
Blablubb
2 months ago

VW publicly stated that they lose money with ever Triplet sold. Of course they will stop then once their purpose has been fulfilled (compliance). They priced them too low. Now the really need an affordable car that is sustainable.

Pedro Lima
Pedro Lima
2 months ago
Reply to  Blablubb

Last year SKODA was selling the 5-door ICE Citigo in its domestic market for 8.120 euros (209.900 CZK). If Volkswagen was really losing money with the electric version that costs 20.000 euros they would be doing a lousy job.๏ปฟ

Maarten Vinkhuyzen
Maarten Vinkhuyzen
2 months ago
Reply to  Pedro Lima

With a total triplet production of 60,000 cars per year for 1-2 year the calculation of amortization and depreciation is very different from a production volume of 600,000 cars per year for 5 years.

The triplets could cannibalize a lot of sales from the ID.3.

Bim
Bim
2 months ago
Reply to  Blablubb

Dont belive what these dinosaurs are releasing in the press, the simple truth is that they control the European market and they dont want to sell EV. Im sure there is cooperation behind closed doors to only produce the minimum nr of EV and sell to the highest price they can get away with just to comply with regulations and just for this i would happily buy a Chinese car or heck whatever brand as i am tired of their pressreleases saying something and then lobying and doing something totally different.

Maarten Vinkhuyzen
Maarten Vinkhuyzen
2 months ago

Bettery prices are still too high for mature autos in the A-, B-, and lower reaches of the C-segment. But all models above those should now be available as fully electric with a range well over 450km and charging above 100kW DC.

As an example, the Zoe (my car and love) has too small a battery, charges too slow and is too expensive. Not ready for prime time yet.

Famlin
Famlin
2 months ago

Killing the triplets is atrocious. I believe they just boosted the battery to 38 KWh which had more than near 300 km range.
If iMiev, cZero, iOn triplets can sell with 100 km range, why not these.

By year end, e-Golf is also discontinued. Are they going to sell as many ID.3 as the triplets + e-Golf put together.ย 
ID.3 is much more expensive than all these vehicles.

Already VW should be making lot of profit on these vehicles with 50% price premium over petrol versions. I hope some automaker like Tesla come up with โ‚ฌ 20.000 BEV.

David Delfieu
David Delfieu
2 months ago

Always interested in reading your articles !

Pedro Lima
Pedro Lima
2 months ago
Reply to  David Delfieu

Thanks David.

Rodrigo Melo
Rodrigo Melo
2 months ago

Hi Pedro,

I think VW will sell the minimum amount of EVs, just to avoid emissions penalties.

Their profits come from selling 10 million ICE cars/year.

Pedro Lima
Pedro Lima
2 months ago
Reply to  Rodrigo Melo

Hi Rodrigo.

I’m not sure about that. I think that automakers if they are smart can profit a lot with modern electric cars, just by selling OTA (Over-the-Air) firmware upgrades to unlock features and VW knows it.

Want to upgrade your motor from 100 to 200 kW? Ok, just pay 2.000 euros and immediately your motor won’t be software limited!

Want to charge faster? Ok, pay 1.000 euros and your electric car will immediately support 150 kW fast charging.

Want to have more battery capacity and range? Ok, pay 3.000 euros and immediately your usable battery capacity will increase from 60 to 90 %!

Powerful electric motors are extremely cheap and battery capacity is already not that expensive, having power and capacity firmware-limited to then sell OTA firmware upgrades to unlock features is what automakers will eventually do.

VW couldn’t do this with the “ancient” triplets, but it can with the new MEB based electric cars if it wishes to.

I also think that this could benefit both customers and automakers.

For automakers production lines would be much simpler, they would basically produce the same electric car and then sell firmware upgrades over the time.

For customers they would have the possibility of immediately buying a much cheaper electric car and later on decide if they want/need more power and/or range.

Don’t you think this is the future?

Rodrigo Melo
Rodrigo Melo
2 months ago
Reply to  Pedro Lima
Alain Risch
Alain Risch
2 months ago

Phev are just the better way to go full รฉlectrique one day. Why ?
First he havenโ€™t mined enough raw material to produce 80mio year 50kwh battery packs.
To go 100% electric we need 4000gwh battery manufacturing per year .
For Electrifying 1000mio car at 50kwh we need 50.000Gwh . 1300 year of Nevada Gigafactory production. Itโ€™s too early to go 100% electric.

At 200Gwh/year we could produce 15mio/year 14kwh PHEv cars.
That means in 10 year 150mio phev cars. If you sell this cars in net oil importing countries you could save 750mio barel per years oil importรฎg. A 30bio dollars cash loss for oil exporting countries. This would hit opec massively et drop cost ar 20 โ‚ฌ/ barel in 2030.

At 20$/barel it would hit also the electric car industry because states would run out of money to subsidize batteries. At the End oil , taxes on oil, taxes on batteries and solar battery will be equivqlenf. So itโ€™s very easy to understand and explain that 1kwh = 200grs diesel = 1ct solar + 1battery storage cycle aka 5000cts USA/ 5000 cycles.

200grs dieselโ€™=1ct + 1 cts 2 cts…. out 10cts/liter at pump. About 10cts/ liter compared to 1.5โ‚ฌ per liter today.