"Volkswagen should freeze short-term spending", CEO whistles urgently! Burn the roof, hard times come

The Volkswagen Group is in crisis.

Thomas Schäfer, CEO of the passenger car brand, admitted the news himself.

He even warned employees that "we will have difficult times ahead" and that "the roof is already on fire."

Volkswagen only released the sales results in the first half of the year, whether it is fuel vehicles or pure electric vehicle sales are rising, the group's operating profit in the first quarter has doubled, there is no sign of recession.

The crisis of the masses, where does it come from?

What kind of crisis does the public face

According to Thomas Schaefer, the crisis of the Volkswagen Group is that the cost of the car business has been too high for many years, and he has called for a freeze on short-term spending to control costs.

Taking R&D investment as an example, since 2016, when the transformation plan was proposed, Volkswagen's cumulative R&D investment has been at least 103.121 billion euros (about 826.953 billion yuan).

But after such a rush of cash, in the first quarter of this year, the profit margin of Volkswagen's passenger car business is still only 3%, and at least 3.6% in 2022.

In contrast, Tesla's gross margin in the first quarter of this year was 19.3%; GM, which is also in the transition period and has multiple brands, did not report a gross profit margin in the first quarter, but its net profit margin was also 6.0%.

And from the perspective of sales volume, although Volkswagen delivered 4,372,200 vehicles worldwide in the first half of the year, a year-on-year increase of 12.8%, pure electric vehicle sales reached 321,600 units, a year-on-year increase of 48%.

△Volkswagen's overall sales volume

However, from the perspective of market segments, these increases mainly came from Europe, North America, South America and other markets, but in the Chinese market, overall sales fell by 1.2% year-on-year, and pure electric vehicle sales fell by 1.6% year-on-year, only 62,400 units were sold.

△Volkswagen pure electric vehicle sales

Although the Volkswagen Group is still the number one in China, with a total of 1,371,200 units sold, this result includes the North and South Volkswagen, and is only ahead of the second place BYD with 216,700 units.

△Image source: Passenger Association

Compared with BYD's sales of only 638,500 units in the same period last year, the gap is narrowing.

The importance of the Chinese market to the public is self-evident. In 2022, Volkswagen sold 8.26 million vehicles worldwide, of which 3.18 million were sold to China, accounting for 38.5%.

In addition, China is already the world's largest new energy vehicle market, and the decline in sales of Volkswagen's pure electric models in China is not conducive to the transformation of the group.

To sum up, the high cost and high investment in Volkswagen's business have not significantly increased the profits of the automotive business, but have also shown a downward trend.

And in the most important Chinese market, Volkswagen's long-standing dominance is also in jeopardy.

The fact that Volkswagen's pure electric vehicle sales in China have declined contains the cause of the Volkswagen crisis.

Mass transformation: get up early and catch up late

In fact, compared with most traditional car brands, Volkswagen transformed very early, and the general direction also followed the trend.

For example, unlike Mercedes-Benz, BMW, Toyota and other giants who are still using oil to electricity to pretend to transform, Volkswagen came up with a completely positive research and development MEB pure electric platform in 2018.

In terms of intelligence, Volkswagen also has an independent software subsidiary, CARIAD, which is responsible for the research and development of software platforms, intelligent cockpits, autonomous driving and other technologies.

And these two are the achievements left by the previous CEO of the group, Herbert Diess, after Diess left, Volkswagen's transformation has no new results.

Among them, although the MEB platform was a blockbuster when it was listed, the ID series based on the MEB platform can be sold more than Tesla in the European market, and it can also sell tens of thousands per month in China.

But 5 years later, there is still no technical iteration. MEB+, PPE and SSP platforms have been delayed, and MEB platforms have changed from slightly ahead to products of the backward era.

For example, the electric drive, charging and wiring harness parameters of the MEB three-electric system can not now support more advanced products such as 4680 and blade batteries, and the final performance is no longer comparable to the new domestic forces.

The ID.4 is equipped with an 84-degree battery version with a range of 555km and supports a maximum fast charging power of 100kW; the Xpeng G6 uses an 87.5-degree battery pack with a range of 755km and a peak fast charging power of 280kW.

As for software, CARIAD is even more slow, resulting in executives being laid off, leaving HR alone.

To add insult to injury, while the VW transformation seems to have stalled, the market is getting more and more volatile. Coupled with Tesla's continuous price cuts this year, the transaction price of the entire industry has directly declined, and it has also squeezed out the market share of other companies.

So after Volkswagen made it clear that it would not participate in the price war, it found that it could not be sold.

For example, in Volkswagen's hometown of Germany, demand for electric vehicles is 30% lower than expected. Volkswagen's first plant had to lay off 300 employees, and employees on the electric vehicle production line began to take a holiday.

In China, the ID series began to reduce prices, and FAW-Volkswagen dropped by up to 63,000.

Volkswagen's high investment in the automotive business has not achieved rapid iteration of technology, and the competitiveness of existing products has begun to decline, which is no wonder that the CEO of Volkswagen Passenger Cars bluntly said that "the roof is on fire."

So, what should Volkswagen do in the future?

Volkswagen's new business strategy: accelerating forward

Volkswagen's new strategy for the next development is called "Accelerate Forward" Road to 6.5), which mainly includes two levels.

At the Group level, each brand has clear performance indicators (KPIs) that focus on operating performance, return on investment, net cash flow, cash conversion and investment ratio, and also introduces incentive programs for management.

From a product-specific point of view, Volkswagen decided to optimize the model, reduce the complexity of the model and reduce the number of products, and the models including Arteon will be discontinued.

In addition, Volkswagen will also develop new regional strategies for the Chinese and North American markets.

Volkswagen hopes to reduce costs, optimize production and increase profitability and expand market share through the plan, which aims to increase the profit margin of its automotive business to 6.5% in 2026, or about 10 billion euros (about 80.192 billion yuan).

Perhaps as part of Volkswagen's new strategy in China, executives have agreed to Audi's purchase of new energy technology from Chinese car companies to accelerate the transformation.

Although this is equivalent to a disguised hint, Audi will be the "OEM factory" of Chinese car companies in the future; But both Volkswagen and Audi are indeed in a hurry.

In this regard, some netizens hit the nail on the head and commented:

"Investing in transformation too early and chaotically is just as dangerous as not trying to transform at all. Good timing is just as important as good execution. ”

So how Volkswagen will execute in the future depends on the specific performance.

Are you optimistic about the transformation of Volkswagen?

Reference Links:

https://electrek.co/2023/07/14/vw-ceo-issues-final-wake-up-call-amid-drastic-spending-freeze/

https://electrek.co/2023/06/15/volkswagen-leaning-down-and-optimizing-product-to-try-and-double-profitability/

https://www.volkswagen-group.com/en/press-releases/volkswagen-group-focuses-its-strategic-alignment-and-launches-performance-programs-at-all-brands-to-strengthen-profitability-and-cash-flow-17385

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