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Volkswagen Needs To Make More Money Selling Cars

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Does this mean prices will go up?

The Volkswagen Group is one of the world's largest automakers. It regularly battles Toyota and the Renault-Nissan-Mitsubishi alliance for that title. But even for a company as big and powerful as VW, making money selling cars is not always easy. Speaking recently in Wolfsburg, Germany, VW Group CEO Herbert Diess discussed the rapidly changing conditions of the industry as electrification and autonomous mobility move into the mainstream.

Investing in the necessary technologies is one thing, but there's another side to consider: how EVs will affect manufacturing. In short, EVs are simpler to build compared to internal combustion vehicles. There are fewer components to put together.

According to VW, it takes 30 percent less time to build EVs. As a result, fewer factory workers are needed, and paying unnecessary employees hurts the bottom line. Early retirement plans for many of those employees could reduce the workforce by 5,000 to 7,000 people. "We must earn significantly more money with our cars so that we can invest in the future," Diess recently said. "We must become leaner, more flexible, faster, so that we can keep up with the new competitors. We must leverage the potential of this great Group and this great factory in Wolfsburg."

Just last year, for example, the main VW brand struggled with profitability. Its operating margin dropped to 3.8 percent. It estimates a 6 percent margin for 2022. Diess has created an aggressive plan to channel resources into EVs, the first of which will debut later this year.

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The VW Group, which also includes Audi and Porsche, among others, aims to build 22 million EVs in the next decade. That's quite a tall order considering all of the new technologies involved and the realignment of factories and supply chains. Above all, VW cannot dramatically increase vehicle prices because it was unable to handle internal and often times painful cost-cutting measures. Why should customers have to pay for that?

Assuming Diess gets his way and the planned cuts go forward, VW Group and its star VW brand stand a good chance of becoming the world's EV leader. If Diess doesn't succeed, the competition will.