Planning Round 70

According to its official press release, Volkswagen revealed its future plan for electrification. Volkswagen is a German multinational automotive manufacturer and compete with its Japanese rival, Toyota, for car sales and productions.

In the release, the German company is planning to build factories for electric vehicles on the Iberian Peninsula. For example, it will produce compact electric vehicles at the multi-brand plant in Martorell. What’s more, the company will manufacture electric SUVs at the multi-brand plant in Pamplona from 2025.

Of course, the final decision depends on the general conditions and government incentives. However, we can be for sure that Volkswagen is seriously considering that it will produce electric vehicles in Spain. In fact, our media has already reported that SEAT, Volkswagen’s subsidiary, accelerated its EV production in Spain.

Therefore, the news is not new, but the German automotive giant increases its investment in future technologies in the industry. Volkswagen will invest 89 billion EURs over the next five years in future technologies such as electromobility and digitization alone. This amount is more than 50% increase than former plan in 2020 that explained its investment plan from 2021 to 2025. In this sense, the company is apparently accelerating its electrification, but why does it do?

Share Price Struggles

First of all, profitability among each brand of Volkswagen is totally different. In fact, there is a huge gap between Volkswagen brand and others. For example, the profitability in premium brands is really high. Operating margin in “Porsche”, “Bentley” and “Audi” brand is 17.6%, 13.4% and 10.7%, respectively. However, the number in “Volkswagen” brand is only 4.4%. Even though premium brands account for 20% of total delivery, they earn more than half of total profit.

This is one of the reasons why Volkswagen is struggling to increase its share price. On the other hand, Tesla, which is an electric vehicles manufacturer, realized 1tn USD market capitalization in 2021. Of course, the secret of Tesla’s share is not only electric vehicle. However, it implies the importance of electrification. Luxury brands such as Bentley, Volvo Cars and Jaguar have already made a decision to go fully electric within a decade.

Thus, the high-end brands can match with electrification very well. The problem here is how to transform mass produced cars into mass produced electric vehicles.

Change People

Even though the Internet, Artificial Intelligence (AI) and other latest technologies are evolving, there is something not to be changed. It is that human beings manufacture products. We decide what we produce, how much we invest in, what equipment we purchase, and algorithm of AI. Therefore, our motivation, skillsets and ways of thinking can be the very base of manufacturing.

When we change products that we will produce, what are necessary for us? They would be new skillsets and mindsets, and new machines. However, it takes time for us to acquire new skillsets. In addition, we cannot change our ways of thinking easily. In this sense, to change people can be more difficult than our expectation.

In fact, Volkswagen is facing this challenge now, so it is also true for Small and Medium Enterprises (SMEs). In general, SMEs have less money, equipment and human resources than big companies such as Volkswagen. Thus, human resources in SMEs can be more critical to survive in the automotive industry. The management of SMEs must make big decisions to educate their employees and invest in new machines.

If Volkswagen accelerates its electrification in Spain, SMEs there should pay attention to this trend. There are many SMEs in Martorell and Pamplona. Employees must take further steps to change themselves to produce new products.