VW Sees Market Shift to Electric Vehicles as Inevitable

But where does that leave them in the U.S. market from a cost perspective?

By Brendan Moore

06.18.2008

Volkswagen chairman Martin Winterkorn recently told the Bild newspaper in Germany that while gasoline-powered cars would still be around, “the future belongs to the electric car.”

I agree with that statement, but what about the problem of what kind of car to sell right now, before the EV (electric vehicle) shows up en masse? VW has that same problem, and their solution is to launch car after car that gets increasingly-better fuel economy and emits increasingly-less pollution until the EV appears in force. VW is shooting for cars in their European market in the next few years that get around 55 mpg average, and given the current market environment of rising gasoline prices in the U.S., their timing may be exquisite in terms of selling those vehicles in the United States as well.

That takes care of the present, and the VW master plan calls for motive power for their future EV models to come from their lithium-ion battery joint effort with Sanyo. VW, like a lot of auto manufacturers, now plans to have a plug-in EV and/or PHEV (plug-in hybrid electric vehicle) for sale in the near future.

It has not escaped Volkswagen’s notice that some of the companies they compete with hammer-and-tongs on the world stage are rolling out EVs and PHEVs in the next couple of years. Toyota announced last week that they would have a PHEV for sale in most of the world by 2010.

Toyota’s announcement comes as competitors like General Motors, Honda Motor Co. and Nissan Motor Co. are pushing hard on their own hybrid and plug-in hybrid vehicles. General Motors maintains that they will selling an electric vehicle (EV) with an emergency supplemental gasoline engine – the Chevrolet Volt – by 2010, and already has several dual-mode hybrids and mild hybrid vehicles for sale. Honda announced last month that it will be selling two new hybrids next year and four hybrid vehicles by 2015, including a hybrid version of their Fit/Jazz, currently a very strong seller in regular form. Almost at the same time as Honda’s announcement, Nissan said it will start mass-producing lithium ion batteries next year, and promised an (EV) production vehicle for sale in 2010. Renault says it will be selling an EV in the next two years, and PSA quickly followed suit. The competition is getting very fierce in the green car (hybrid, PHEV, EV, etc.) segment and one has to wonder if VW has been caught out a bit in terms of their lateness to the party.

Toyota’s hybrid Prius, for example, which has been on sale for more than a decade, recently reached cumulative sales of 1 million vehicles. Toyota, Japan’s top automaker, and at this point in the year, the world’s top automaker as well, leads the industry in gas-electric hybrids. The company has stated repeatedly as of late that it will increase hybrid sales to 1 million a year sometime shortly after 2010.

And then, of course, there is the question of where these vehicles will be made. VW is getting crushed by the weak dollar, and in fact, is rumored to be considering ceasing sales of their volume-model Golf (nee Rabbit) in the U.S. because they just can’t make any money on the thing. The current generation of the Golf has proven to be a financial sinkhole for VW right from launch when VW had to resort to expensive incentives just to sell it in the hatchback-averse American market. The Golf/Rabbit has only recently started to be (barely) profitable, and that has only occurred as a result of the massive increases in the cost of gasoline in the U.S.


Volkswagen is planning to open a factory in the U.S. by 2011 to offset the weak dollar factor, but there remains the problem of what to do in the interim. With competitors like GM and Toyota intending to build their EVs, PHEVs and hybrids in the U.S., you can easily see how the same ugly problem would rear its head in regards to the green car segment.

VW aims to triple its US sales to 1m by 2018, and also aims to pass both GM and Toyota in global sales by 2020, including sales of its Audi luxury brand. It’s hard to see how that would work, even putting aside the new market emphasis on green vehicles, and its even harder to envision that result when you factor in the ongoing shift to EV and PHEV vehicles, and realize that VW has nothing in the queue right now that would meet those segment requirements.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. Vw could make quite a dent in the smal car market in the US if they would just bring all of their excellent diesels over, including the Polo.

  2. If they could, they would, but they can’t. Only one diesel engine runs clean enough for 50 states, and that one is going to show in the new Jetta a few months from now, and that’s it,

  3. Not to mention diesel is 20% than regular unleaded in most parts of the US, which eliminates most of the MPG advantage it has over a small displacement gas engine.

  4. Good post. Insightful in that VW’s basic problem does not go away by switching to an EV or PHEV platform, they still need local production for the U.S. market.

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