Volkswagen Group has set out a new strategy to 2025 in which it aims to become a “world-leading provider of sustainable mobility”.
The company, still reeling from the impact of its ongoing emissions crisis, says that “TOGETHER – Strategy 2025” ushers in the biggest change process in the company’s history, with the focus on transforming the core business and tapping potential new revenue streams.
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Electrification and new mobility solutions are highlighted in the new strategy, which includes a major electrification initiative – more than 30 new e-vehicles by 2025 and annual unit sales target of two to three million.
It said that battery technology, digitalisation and autonomous driving will be developed into new group competencies
VW Group CEO Matthias Müller summarised the aims: “The Volkswagen Group will be more focused, efficient, innovative, customer-driven and sustainable – and systematically geared to generating profitable growth.”
VW Group said the strategy amounts to “comprehensively transforming the core automotive business, rapidly establishing a new mobility solutions business, significantly increasing efficiency as well as strengthening innovation power and entrepreneurial mindset and approach in the company.”
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By GlobalDataIn readiness for the new age of mobility, Volkswagen said it will sharpen the positioning of the group brands and optimise the vehicle and drivetrain portfolio to focus on the most attractive and fastest-growing market segments. Furthermore, it said the group’s current product portfolio of around 340 different model variants will be “systematically geared to profitable growth, taking regional market and customer needs into account”.
e-mobility emphasis
With regard to vehicles, and drivetrains, special emphasis will be place on e-mobility. VW Group intends to launch more than 30 purely battery-powered electric vehicles (BEVs) over the next ten years. The company estimates that such vehicles could then account for around a quarter of the global passenger car market. The Volkswagen Group forecasts that its own BEV sales will be between two and three million units in 2025, equivalent to some 20 to 25 percent of the total unit sales expected at that time.
Volkswagen is also to review and streamline its modular architectures in the context of generating profitable growth so as to reduce complexity in development and production, increase efficiency and thus make better use of the system’s economic merits.
The regional growth strategy already initiated in particularly attractive automotive markets is being continued. The Volkswagen Group is affirming its expansion and investment plans already announced for North America and its continued expansion program in China. In this context, the Volkswagen Group intends to tap the economy segment – i.e. the segment comprising attractively-priced entry-level products that is, for instance, especially relevant for Asia – by partnering with regional players. Talks in this regard are described as “at an advanced stage”.
New competencies
A further lever for transforming the core automotive business is to develop new competencies and provide the resources necessary to address the future topic of autonomous driving and artificial intelligence. The aim is to licence a competitive self-driving system (SDS) developed in-house by the end of the decade.
In light of the rapid gains in market volume and unit sales of electric vehicles over the coming years, the Volkswagen Group is also to develop battery technology as a new competency. The strategic options for participating in the potential revenue stream associated with this and developing battery technology into a new group competency will be carefully examined.
Components business realigned
Alongside implementing the model line organisation at the group brands, VW said it will be realigning the components business, which currently accounts for around 67,000 employees at 26 locations worldwide. The relevant activities are to be systematically combined across all brands and strategically realigned. VW said it “hopes that realigning the components business will strengthen competitiveness, increase efficiency and make significant contributions to future topics such as the e-mobility initiative”.
For its commercial vehicles business, which currently comprises the Scania, MAN and Volkswagen Commercial Vehicles brands, the group reaffirmed its strategic goal of creating a global champion. The plan is for Volkswagen Truck & Bus, as a multi-brand provider across the cycle, to become the most profitable company in the sector, with a significant presence in all key regions of the globe. These targets are to be achieved firstly through much closer cooperation between the commercial vehicles brands and, secondly, by enhancing the group’s overall performance as well as expanding its global footprint. New business models will also play a decisive role in this. In the medium term, the business unit will increasingly evolve from a purely commercial vehicles manufacturer into a “provider of intelligent transportation solutions”.
Mobility services as additional growth driver
The second key building block of “TOGETHER – Strategy 2025” alongside the transformation of the core business involves the establishment of a cross-brand mobility solutions business. The new unit will develop and acquire offerings tailored to customer requirements – centering on and starting with ride hailing, i.e. on-demand mobility services. Other services such as robotaxis, carsharing and transport on-demand will then be grouped around this nucleus, VW says. The Volkswagen Group already secured its first foothold in the ride hailing segment at the end of May, when it invested in a strategic partnership with on-demand mobility company Gett.
In a rapidly expanding market, Volkswagen’s aim is for the new mobility solutions business unit to generate sales revenue in the billions by 2025.
VW also said it is “driving forward with digitalisation across all areas and brands. At the same time, the company will rely to a greater extent than before on partnerships, acquisitions and venture capital investments”. In the future, investment selection will be managed centrally in order to generate maximum added value for the group and its brands.
Significant efficiency improvements
In total, group-wide investments in future topics under Strategy 2025 are expected to be in the double-digit billion range, the company says. More specifically, the Volkswagen Group is aiming for a ratio of capex to sales revenue in the automotive business of 6% by 2025. The efficiency of research and development expenditures is also to be significantly improved, it says; the ratio of R&D costs to sales revenue is targeted to be reduced to 6%. In addition, selling, general and administrative expenses, which as a percentage of sales revenue “have increased significantly in recent years, are to be reduced to under 12%”. Overall, based on the figures for fiscal year 2015, the Volkswagen Group expects more efficient use of resources to generate the potential for a “significant annual improvement in earnings”. The individual measures at Group, brand and divisional level will be set out in greater detail in the coming months, VW said.
Financial targets amended
“Strategy 2025” also came with amended financial targets. “In line with being systematically geared to generating profitable growth, the focus is clearly on earnings power. Over the coming years, we will do all we can to continuously create value for our shareholders based on a solid financial position,” said Chief Financial Officer Frank Witter. For the Group’s operating return on sales, which in 2015 stood at 6% before special items, the aim is an increase to between 7 and 8% by 2025. The return on capital employed in the Automotive Division is then intended to be more than 15%. The payout ratio to shareholders is to be sustained at around 30% of net profit.
“The Volkswagen of the future will inspire its customers with fascinating vehicles, financial services tailored to demand, and smart mobility solutions. We will be a technology leader and role model when it comes to environment, safety and integrity. The group will achieve competitive profitability, and so remain both an attractive investment and an excellent, reliable and secure employer. In short, Volkswagen will be an enterprise we can all be proud of,” said CEO Matthias Müller.
