VW Group is having to look very carefully at where it can justify capex as potential costs associated with the diesel emissions crisis rise

VW Group is having to look very carefully at where it can justify capex as potential costs associated with the diesel emissions crisis rise

VW Group is planning to rein in its capital spending next year as it makes allowance for additional costs related to its diesel emissions scandal.

The company says the "aim is for planned investments in property, plant and equipment, investment property and intangible assets, excluding capitalised development costs (capex), to be capped at approximately EUR12bn next year". The average figure for the previous planning period was about EUR13bn per year.

"We are operating in uncertain and volatile times and are responding to this," said Matthias Müller, VW Group CEO. "We will strictly prioritise all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed."

Müller said the intention is to increase expenditure on alternative drive technologies by approximately EUR100m next year. "We are not going to make the mistake of economising on our future. For this reason we are planning to further increase spending on the development of e-mobility and digitalisation," he said. The core focus will be on rapidly developing electric drive systems for the Volkswagen Passenger Cars, Audi and Porsche brands.

VW said most of the planned capex is earmarked for new products, the continuing rollout and enhancement of the modular toolkits, and the completion of ongoing investments to expand capacity. Examples include product start-ups such as the next-generation Golf, the Audi Q5, the new Crafter plant in Poland, as well as upfront expenditures for the modular electric toolkit (MEB).

Approximately 50 percent of capex will be spent on the Group's 28 locations in Germany.

Müller also outlined the first projects as examples where investments are being spread out to a greater extent or cut back. For example, construction of the planned new design centre in Wolfsburg is being put on hold, saving approximately EUR100m. In addition, the construction of a paint shop in Mexico will be "reviewed".

In the model range, the successor to the Phaeton – a pure-play electric model – is being delayed. "We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk," said Müller. He added: "Together with the works council representatives we will make every effort to keep our core workforce on board."

The joint ventures in China are not consolidated and are therefore not included in the above figures. These companies will maintain their previously announced investment levels and are planning expenditures in the amount of approximately EUR4.4bn in 2016. These investments will be financed from the joint ventures' own funds, VW said.