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. I’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
1 year 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.

Lex
1 year 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?

Pit
1 year ago
Reply to  Lex

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

They don’t need to be better because they could stop Chinese competition with regulations and taxes

Freddy
1 year 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
1 year 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.

Lex
1 year 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.

Michal Grabowski
1 year 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

Maximilian Holland
1 year ago

Thanks for this Pedro. VW group need to focus on getting their EV costs under control so that the triplets (or similar sub €20k 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.

Freddy
1 year 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
1 year 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 €40-50k tag prices for just ok cars. Incentives should be redirected to create charging stations. Chinese segment A cars can not come soon enough.

Freddy
1 year 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
1 year 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.

Maarten Vinkhuyzen
1 year 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
1 year 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
1 year 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
1 year 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. 
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 € 20.000 BEV.

David Delfieu
1 year ago

Always interested in reading your articles !

Rodrigo Melo
1 year 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.

Rodrigo Melo
1 year ago
Reply to  Pedro Lima
Alain Risch
1 year ago

Phev are just the better way to go full électrique one day. Why ?
First he haven’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. It’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 importîg. A 30bio dollars cash loss for oil exporting countries. This would hit opec massively et drop cost ar 20 €/ 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 it’s very easy to understand and explain that 1kwh = 200grs diesel = 1ct solar + 1battery storage cycle aka 5000cts USA/ 5000 cycles.

200grs diesel’=1ct + 1 cts 2 cts…. out 10cts/liter at pump. About 10cts/ liter compared to 1.5€ per liter today.