November, 2020, Volkswagen made a big decision for the future

On November 16th, 2020, Volkswagen announced its strategic decision as follows.

The Volkswagen Group is pressing ahead with its transformation into a digital mobility company. As decided in Planning Round 69, the Group will spend around EUR 73 billion on electrification, hybrid powertrains and digital technology over the next five years. This was announced following today’s Supervisory Board meeting. Investments in Capex and R&D for future technologies will be raised to 50 percent from 40 percent of the Group’s total investments of around EUR 150 billion. Investments in digitalization will double to EUR 27 billion by mid-decade, reflecting the Group’s strong focus on building up software capabilities. Approximately EUR 35 billion will be spent on battery-electric vehicles. A further approximately EUR 11 billion has been earmarked for the development of hybrid vehicles of existing models.

Who is Volkswagen?

Based on its homepage, Portraits & Production Plants of Volkswagen are describe as follows.

The Volkswagen Group, with its headquarters in Wolfsburg, is one of the world’s leading automobile manufacturers and the largest carmaker in Europe.

In difficult market conditions, the number of Group vehicles delivered to customers rose to 10.97 million in 2019 (2018: 10.8 million). The global car market share rose to 12.9 percent (2018: 12.2 percent). Group sales revenue in 2019 totaled € 252,6 billion (2018: € 236 billion), while earnings after tax amounted to € 14.0 billion (2018: € 12.2 billion).

The Group comprises twelve brands from seven European countries: Volkswagen Passenger Cars, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. Each brand has its own character and operates as an independent entity on the market. The product spectrum ranges from motorcycles to small cars and luxury vehicles.

The Commercial Vehicles Business Area primarily comprises the development, production and sale of light commercial vehicles, trucks and buses from the Volkswagen Commercial Vehicles, Scania and MAN brands, the corresponding genuine parts business and services. The collaboration between the MAN and Scania commercial vehicle brands is coordinated within the TRATON GROUP. The commercial vehicles portfolio ranges from pickups to heavy trucks and buses. The Power Engineering Business Area combines the largebore diesel engines, turbomachinery, special gear units, propulsion components and testing systems businesses.

In addition, the Volkswagen Group offers a wide range of financial services, including dealer and customer financing, leasing, banking and insurance activities, and fleet management.

The Group operates 125 production plants in 20 European countries and a further 11 countries in the Americas, Asia and Africa. 671,205 employees worldwide produce vehicles, and work in vehicle-related services or other fields of business. The Volkswagen Group sells its vehicles in 153 countries.

Under the new vision “Shaping mobility – for generations to come.” the Volkswagen Group with its sharpened TOGETHER 2025+ strategy provides answers to the challenges of today and tomorrow. Our goal is to make mobility sustainable for us and for future generations. Our promise: With electric drive, digital networking and autonomous driving, we are making automobiles clean, quiet, intelligent and safe. At the same time, our core product becomes even more emotional and offers a completely new driving experience. It is also becoming part of the solution when it comes to climate and environmental protection. In this way, the car can continue to be a cornerstone of contemporary, individual and affordable mobility in the future.

Volkswagen’s decision implies just the inauguration of a new era

First of all, when we heard this announcement, many of us might think that the number, EUR 73 billion, was so huge. To compare to this number, the nominal GDP in 2019 per the World Bank reported that the 70th largest country was Luxemburg and the number was about USD 71 billion. Can you imagine that the company will be able to invest the same amount as 70th largest economy in the world for only 5 years span? At the same time, the German automotive giant has more than 670,000 employees all over the world and this number is almost same as in Macao or Montenegro (167th and 168th and the data is based on United Nations), respectively. Therefore, it is no exaggeration to say that Volkswagen itself is like a country.

One more important thing is that the automotive giant mentions the word, “transformation”, again and again in the announcement. The company quoted this word ten times! However, if we govern some country, is it easy or difficult to transform it? The answer should be No. Therefore, even if Volkswagen has long excellent history, hire excellent people and invest tons of money, the process of transformation is easier said than done. Even though the company knows the road is tough, it cannot but execute it. This is because automotive industry faces biggest disruption in 100 years and Volkswagen has already decided to want to become a digital mobility company. Thus, the next question could be how to implement it so that this announcement is reasonable and just the beginning of the transformation.