Volkswagen launches to lead the world electric market thanks to its powerful structure

Volkswagen prepares a massive production of electric cars, up to one million units by the end of 2022, according to the plans of the German group. With that amount, it would surpass Tesla and make China the center of the battlefield for the market for new vehicles without emissions. VW is conditioning two factories in the Asian giant to manufacture cars in 2020 with a production of 600,000 units .

There was no news of these plans, but they demonstrate Volkswagen’s ability to produce faster than the pioneers in the electric vehicle market. Tesla is still trying to reach half a million cars annually and for that he builds a plant in Shanghai. Volkswagen has already prepared two of its plants, in Anting and Fosung, to manufacture vehicles with zero emissions . The speed of the VW electrification pulse marks a change in favor of established manufacturers, who can use existing factories and benefit from sport utility vehicles (SUVs) with combustion engines to scale faster than new companies.

“The change to electric vehicles will be expensive, but it will probably be led by traditional manufacturers,” says analyst Max Warburton of Bernstein Research. The enormous infrastructure of suppliers, factories and workers that played for a long time against the profitability of Volkswagen , is now an opportunity to compete more aggressively with BMW, Renault SA, General Motors Co and Tesla, which were faster in selling an electric car for everyday use.

Instead of gradually adjusting production and using multiple powertrain platforms, Volkswagen is making a massive commitment to a dedicated electric vehicle architecture, known as MEB, in hopes of increasing production enough to reduce the price of cars. electric to around 20,000 euros. The manufacturer of Wolfsburg is restructuring eight plants worldwide to specialize in 2022 in the manufacture of electric cars and offers the license of its MEB electric platform to its rivals, which would lead it to become the world’s largest manufacturer of zero vehicles emissions.

Tesla is a serious competitor with a credible car, his Model 3, Volkswagen CEO Herbert Diess told Reuters last week. But new companies have difficulty producing massively due to lack of sufficient production facilities, he said. “The question is whether it can expand its production fast enough. The capital intensity is increasing,” Diess said.

To finance its own electrification change, the German automaker aims to increase sales of its SUVs with combustion engines to 40% of the total by 2020, when in 2018 they only reached 23%. The power plant that supplies energy for the flagship factory of VW electronic vehicles in Zwickau, Germany, was built to boost the production of the Volkswagen Golf with combustion engine. Now Zwickau can take advantage of this infrastructure to increase production to 330,000 ID electric cars in 2021.

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The Volkswagen Group will increase economies of scale with electric vehicle platforms for its Audi, Skoda, Seat and Porsche brands. It will be able to build 22 million electric cars by 2028, of which 11.6 million could leave Chinese factories, VW said.

VW’s momentum of expansion comes at a time when investors have begun to question companies that generate growth without real gains, a change that is crippling the ability of several electric car pioneers to raise more cash. In 2016, Tesla said he wanted to build more than 500,000 Model 3 cars by 2018, a goal he did not achieve. This year it expects to deliver 360,000 to 400,000 cars, including all its models.

Tesla’s difficulties have diminished optimism about how easy it is to enter the automobile business, making it difficult for the Chinese NIO, backed by the internet company Tencent Holdings Ltd, and others such as Faraday Future and Byton Ltd, to finance The next stage of growth: volume of production and capital intensive sales.

“I respect very much those who manufacture large volumes. It’s incredibly difficult, but you believe something authentic that people value. I take my hat off to you,” Tesla owner Elon Musk tweeted earlier this month. After starting production tests at its factory in Shanghai, Tesla now expects to reach its target of 500,000 vehicles in the 12-month period ending June 30, 2020. Tesla is also looking for a site to begin production in Europe.

Volkswagen is converting two German plants, Hannover and Zwickau, to build electric vehicles and will modernize other factories, including plants in China: Foshan, which VW manages together with its joint venture partner FAW-Volkswagen, and another in Anting, with which VW SAIC operates.

It will reorganize the plants in Emden and Dresden in Germany, Mlada Boleslav in the Czech Republic and Chattanooga, Tennessee, in the United States, as part of an investment boost of 30 billion euros towards electronic mobility by 2023.

As a result, Volkswagen Group will be the world’s leading producer of electric vehicles in 2025, while Tesla will likely remain a niche player, according to UBS car analyst Patrick Hummel.

The brutal rivalry between car manufacturers and software companies began when Google, of Alphabet Inc, presented a prototype autonomous vehicle in 2012, which led analysts and industry executives to fear the so-called Nokia moment. This occurs when a new player in the technology sector presents a superior design, in the way that Apple Inc. introduced the iPhone in 2007, ending Nokia’s dominance in the mobile device business.

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Today, Tesla cars are generally perceived as avant-garde and potentially more sophisticated than those of Volkswagen. The Volkswagen ID.3, which begins to be produced this year, has an operating range of 330 to 550 kilometers, below the Model 3 version of 560 km offered by Tesla. This is because Tesla has a sophisticated software algorithm to control the amount of electricity that goes to the electric motor, air conditioning, seat heaters and the car’s information and entertainment system.

Volkswagen’s advantage is stronger: prices and massive economies of scale. ID.3 has an initial price of less than 30,000 euros in Germany. In contrast, Tesla Model 3 had an average sales price of 45,000 in the second quarter. The version of maximum autonomy sells for 52,390 euros in Germany.

The lowest price of the VW vehicle comes from the ability of the automaker to place large orders that, due to its size, help lower the price. Volkswagen is investing 50 billion euros to buy battery cells and will also offer its MEB electric car platform to rival car manufacturers to further increase its economy of scale. Volkswagen will make a great investment if suppliers can keep up.

“There is a lot of investment,” Stefan Sommer, a board member of the Volkswagen Group responsible for acquisitions, told Reuters last month. “But even the big companies like Samsung, CATL, LG Chem, the big ones, SK, hesitate to take so much money and invest because they don’t see the market. Now we are seeing that the first battery plants, LG in Poland, CATL in Germany, they don’t have skilled labor. That will be the bottleneck, “said Sommer. “It’s a learning curve that everyone has to work for. This will cause some supply delays. We have no other choice.”

VW plans to give permission to use its MEB electric vehicle platform to Ford, which will give it $ 10 billion over the next six years. Thomas Ulbrich, a Volkswagen board member who oversees the production of electric vehicles, told Reuters: “The Ford and Volkswagen agreement will be a plan for future licensing agreements.”

In the short term, Volkswagen and its Chinese joint venture partners will invest 15 billion euros to produce 15 different electric cars only for China in 2025. “The first MEB-based vehicle is an SUV model,” Volkswagen said of production in China.

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