You are right on those issues. I think when it comes to Volkswagen Group, the main problems relate to inefficiencies at the Volkswagen brand, growing competition in Europe and China, lacking behind in software technology, and the 2025 CO2 regulation which will be a drag on margins. Here is my understanding of each issue:
- Competitiveness of Volkswagen’s products: I am in the process of comparing Volkswagen’s products with those of Mercedes, BMW and even Volvo, and so far they appear competitive. The only major issues with these products is that they are somehow dated and are prone to software issues compared to that of rivals. However, the partnership with Xpeng and Rivian, two of the world’s industry leaders on tech should help the company fix the software issue in its 2026+ models. Similarly, Volkswagen is currently undergoing its largest product offensive in history which should make its products newer. I will give a full assessment on the competitiveness of its new products later on. While Chinese EVs are very competitive, due to reasons mentioned here, I don’t expect them to steal significant market share in Europe over the short-term to medium term. That should give the likes of Volkswagen time to develop cheaper and attractive models to ward them off.
Volkswagen already said that its ID.2 model priced at less than 25,000 euros is on track for a 2026 launch. In my opinion, such cheap EVs will be a gamechanger for European automakers given that consumers are yearning for them. Volkswagen also has a partnership with Xpeng and SAIC to develop cars for the Chinese markets. These models will come with advanced tech which should appeal the young Chinese buyers and help the company to maintain if not recoup its market share starting in 2026. - Cost-cuts and other efficiency measures: If Volkswagen brand is successful in the efficiency measures, its operating return on sales is expected to improve from 3.2% in Q3 2024 to 6.5% by 2026-cost-savings of more than 10 billion euros. Judging from the wage negotiation talks, it appears that Volkswagen is serious about the measures.
- 2025 CO2 regulation: While Volkswagen could avoid much of the penalty through pooling, the regulation will be a drag on margins and sales volume. Germany is currently lobbying for the regulation to be postponed. If they are not successful, I think they could reintroduce the EVs subsidies which is currently under discussions. This should reduce the headwinds on margins and sales volume.
Overall, I think Volkswagen’s success in beating this problems comes down to the execution of its management. So far, other than the arrival of models that had been delayed by software problems such as the EV Macan, Audi Q6 e-tron and Audi A6 e-tron, I currently don’t see much that proves management’s execution strategy is working.