Volkswagen Group is in a good position to be CO2 compliant in 2025-2027, price headwind appears minimal
Given the EU Commission’s proposal to average the CO2 compliance between 2025 and 2027, the key question is now whether Volkswagen can absorb the price reduction for BEVs by increasing prices for ICEs, and whether the price reduction will drive more BEV sales. Assuming they achieve their target of 20% BEV share in 2025, growing their BEV share to 23% and 25.5% in 2026 and 2027 respectively will enable them to achieve CO2 neutrality in 2025-2027. The main challenge will be in 2025 since they will have to increase their BEV sales by around 49% or 250,000 vehicles. However, I now believe that they can meet the 2025 BEV share target due to their strong product portfolio and the pricing discounts (€3,500) they are offering. They said their BEV order intake in Europe is up 80% year-on-year, thanks to the discounts. In 2026 and 2027, they will only have to increase BEV sales by 16% and 12% year-on-year respectively so as to achieve the average compliance. As per my estimates, reducing the prices of BEVs by €3,500 will make them increase prices of ICEs by an average of €700 in order to achieve price neutrality in 2025. This is a medium price increase, and they should have more room to increase prices for ICEs to compensate for their expected flat growth in sales and revenue growth of 5% in 2025. However, the extent to which they can increase prices for ICEs will also depend on the pricing trend in the industry. If competitors are not increasing prices for ICEs, Volkswagen may not have enough leeway to do so. @Magaly insights on Europe pricing trend in 2025 will help.