The automaker’s "TOGETHER - Strategy 2025" plan is as ambitious as it gets

Volkswagen CEO Matthias Muller calls it the “biggest change process in Volkswagen’s history” and, from the scope of the company’s “TOGETHER - Strategy 2025,” the words "biggest change process" might be understating it a little. There are a number of items in the new long-term strategy that stand out, with two of the most significant involving electrification and autonomous driving technology.

According to Volkswagen, electric vehicles will be a huge part of its brand moving forward. It’s even set an objective to launch more than 30 new electric cars by 2025 as part of a bigger goal to sell two to three million EVs on an annual basis. The company’s target is important to take note of because if Volkswagen is successful in reaching its goal, it would represent close to a quarter of its total sales volume.

An equally bold plan is being laid out for autonomous driving technology, which Volkswagen described as another “key issue” in the transformation of its core business. Fitting its status as one of the world’s biggest automakers, VW plans to have autonomous driving vehicles for all relevant segments, and it will pursue this goal by developing an in-house autonomous driving system with a goal of hitting the market at the start of the next decade. This plan calls for investments in the technology that will cost VW billions, and even though it’s still struggling with the fallout from the emissions cheating scandal, it’s still well-equipped to handle the massive costs of going all-in on autonomous driving technology.

Far less ambitious and something for the short term is the automotive giant’s plan to fit its existing gasoline engines with a particulate filter that’s designed to cut particulate emissions by as much as 90 percent. Beginning in June 2017, the Audi A5 and the Volkswagen Tiguan will be the first models to receive the filter. In the long term, Volkswagen plans to use this technology on around seven million units sold annually by 2022.

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Why it matters

In addition to what has already been mentioned, it’s important to note that Volkswagen is also making the development of battery technology one of its priorities, citing it as the key towards establishing the company as a leader in electric vehicles. According to Muller, the company would need “150 gigawatt hours of battery capacity by 2025 for our own e-fleet alone – which would make for a massive procurement volume.”

For what it’s worth, Volkswagen is well-equipped to handle the strategy it’s laying out, so even if all of this sounds far-reaching for other automakers, I think Volkswagen can pull it off if puts itself in the right position to do it. That in itself is the problem with Volkswagen. It’s got the resources and the capability that very few other automakers have. But, as the diesel scandal showed, none of those resources matter if the automaker will just take shortcuts, and illegal ones at that.

If VW really wants to accomplish the plans it laid out for the next decade, it needs to do it by the book, free of any underhanded dealings. History may suggest otherwise, but in any event, here’s to hoping that Volkswagen has really learned its lesson.

Kirby Garlitos
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Press Release

Matthias Müller, the CEO of Volkswagen Aktiengesellschaft, presented "TOGETHER – Strategy 2025", the Company’s vision for the next decade, to approximately 3,000 shareholders at the 56th Annual General Meeting in Hanover in Hall 3 of Messe Hannover. At the same time, he reaffirmed that the Company would invest billions over the coming years in a major "electrification initiative second to none in the industry" as well as in autonomous driving, digitalization and new business fields such as mobility services.

"We are also continuing our intensive efforts to enhance the environmental compatibility of our diesel and gasoline models," Müller said and then announced another milestone related to the internal combustion engine. "We will successively equip the Group’s new TSI and TFSI engines with gasoline particulate filters. This initiative will begin with the 1.4 liter TSI engine* in the new VW Tiguan and the Audi A5 in June 2017. This will reduce particulate emissions by up to 90 percent. Up to 7 million Volkswagen vehicles could be equipped with this technology each year by 2022."

Recall gathers speed: approval from the KBA (Federal Motor Transport Authority) for more than 3.7 million vehicles

The Federal Motor Transport Authority recently issued approval covering approximately 1 million further vehicles – primarily Golf models. This means approval has now been issued for more than 3.7 million affected vehicles, including the VW Passat, Tiguan and Caddy, all variants of the Golf, the SEAT Exeo and the ŠKODA Superb plus various Audi models such as the A3, A4 and Q5. "We expect the recall campaign to really pick up speed now. Tens of thousands of vehicle owners will be informed in the next weeks and asked to take their vehicles to the workshops. Our customers can rest assured that we will continue to do our utmost to make every effort to execute the recall campaign as quickly, professionally and satisfactorily as possible."

He said the Company’s "most important currency" was credibility and trust in the Group’s brands, products and "Volkswagen as a whole", adding that it was all about regaining the trust lost as a result of the diesel issue. With reference to the current fiscal year, he added: "That does not mean, of course, that we have buried our ambition. Quite the opposite. We do not plan to make it easy for the competition." The 60 or so innovations that the Group will be launching on the market in 2016 will play a role as well. These include vehicles like the new VW Tiguan, the Audi Q2, the new SEAT Ateca and the Porsche Panamera, "which have been extremely well received and for which we have high expectations."

Müller also made it clear that "in 2016, too, we will naturally be paying very close attention to our costs. The ongoing efficiency programs are in full swing throughout the Group. And with regard to capital expenditure, we will set the necessary priorities and maintain strict discipline." However, there was no doubt that "even in difficult times, we will meet our social responsibility to our employees. This is what sets Volkswagen apart from many other companies. And that will remain the case in the future."

Exploiting revolutionary transformation for profitable growth with Strategy 2015

Müller called 2016 a year of transition for the Company: "However, it will also be a year in which we accelerate the ongoing transformation. In which we set the stage for the future of the Group. In which we lay the foundation for a new, better Volkswagen." He sees the automotive industry on the cusp of the next big innovative leap. In conjunction with e-mobility and autonomous driving, digitalization will revolutionize the Volkswagen Group’s business to an extent that many people still fail to appreciate. But it is not just the automobile itself that will see massive changes in the years ahead – mobility as a standalone product is being redefined. Noting that this revolutionary transformation opens up tremendous opportunities for the Company, he added: "We plan to harness these opportunities for profitable growth."

The Company is already laying the foundations for this with TOGETHER – Strategy 2025, the future program that was announced to the public last week. Müller told the shareholders that the new Group strategy will clear the way for transforming one of the world’s best carmakers into one of the world’s leading providers of sustainable mobility. "We have launched the biggest change process in Volkswagen’s history," he said, and continued: "In TOGETHER – Strategy 2025, we have formulated a clear vision for the next decade."

Electrification initiative with more than 30 fully electric cars by 2025

In Strategy 2025, the Group is undertaking an electrification initiative that is "second to none in the industry." Nonetheless, the combustion engine remains important: "It will be with us for some time to come and will still account for around two-thirds of the new vehicles market volumes in 2030. But that also means the other third will be electrically powered. The breakthrough for e-mobility will long be reality by then. And we are determined to make e-mobility a new hallmark of Volkswagen."

The Volkswagen Group is going to launch over 30 fully electric new vehicles by 2025. "We expect that by then we will be selling about 2 to 3 million pure-electric automobiles a year. This will account for a significant share – an estimated 25 percent – of our total sales volume. We are stepping up our efforts accordingly and will launch a multi-billion euro investment program," Müller declared.

At the same time, Müller pointed out: "As far as the development of fuel cells is concerned, we intend to stay on the ball in this area too. And we will be ready when the time is ripe."

Autonomous driving and battery technology to become core competencies

Autonomous driving is another key issue in the transformation of core business. The Company’s aspiration is to serve all relevant segments, with autonomous vehicle concepts for private transport as well as last-mile solutions for shifting people and freight in major cities. Matthias Müller went on to say: "Fully autonomous vehicles with a self-driving system developed in-house will enter the market by the beginning of the next decade. Cumulative investment in new autonomous mobility solutions will amount to several billion euros."

A similar goal is being pursued in another initiative: establishing battery technology as one of the Volkswagen Group’s core competencies. This technology is the key to e-mobility. It accounts for 20 to 30 percent of value-added for fully electric vehicles. "We will need 150 gigawatt hours of battery capacity by 2025 for our own e-fleet alone – which would make for a massive procurement volume," the CEO explained.

The economic importance of this issue is plain to see. And the technological expertise will certainly be a good fit with the Volkswagen Group. Müller pointed out: "We will examine in detail all strategic options for developing battery technology as a new core competency for the Volkswagen Group. In doing so, we will be scrutinizing the entire process chain – from raw material right through to battery production."

Realignment and bundling of components business across the Group

One of the Volkswagen Group’s little-known strengths is the manufacture of "first-rate components." One of the world’s biggest automotive parts suppliers is part of the Group.
The components business today boasts a workforce of some 67,000 at 26 locations across five continents and belonging to various brands. Here, Müller said: "We have decided to strategically realign and combine these activities across the Group. The realignment will give the components business greater entrepreneurial freedom. We anticipate that this will improve transparency while boosting internal competition. It will also contribute substantially to future topics such as electro-mobility." And he added: "Anyone familiar with Volkswagen will know that the realignment of the components business is a big step for our Company – as is the transformation of our core business as a whole. In all of this, we will proceed responsibly and in a spirit of cooperation. That, too, is part of Volkswagen. We owe it to our workforce, who are doing a great job in these turbulent times."

The second building block of Strategy 2025 is the creation of the new mobility services business. The Volkswagen Group aims to exploit the opportunities in this growth market. "With our investment in Gett, we have already taken a key first step. This strategic partnership with a company that already has more than 50 million users in the fast-growing ride hailing market is the nucleus for expanding the business. In the years ahead, we will group other services such as robotaxis, carsharing or on-demand transport in quick succession around this core service. In a rapidly expanding and hotly contended market, our aim is for it to generate sales revenue in the multi-billion range by 2025."

Volkswagen to become a model for "Integrity & Legal Affairs"

Regarding the diesel issue, Matthias Müller assured shareholders that the main thing now was to find good solutions for customers, systematically investigate how the situation could have happened in the first place and, looking forward, to learn from past mistakes and do the right things in the future. The CEO added: "What’s done cannot be undone. But what does lie in our power is ensuring we act in a responsible manner. This is our commitment to you. What unites all of us with a role to play here at Volkswagen – whether it be the Supervisory Board, Board of Management, executives, employee representatives or workers – is the desire to do everything we can to win back trust." He also stressed the great significance of compliance and integrity for the future of the Group: "What our experience over the last few months has shown is that long-term success is only possible where law-abiding and value-driven behavior forms the basis for our daily actions and decision-making. This principle must and will be anchored more firmly throughout the Group and, even more importantly, be put into practice on a daily basis." The goal is to make Volkswagen a model of how ’Integrity & Legal Affairs’ should be implemented in a modern, transparent and successful company. "In doing so, we are also mindful of the fact that not everything that is legal is also correct," Müller said.

In addition to the external investigation by US law firm Jones Day, the second thrust of the overall investigation was an internal audit. This was ordered by the Board of Management immediately after the misconduct came to light. The audit focused on three clusters: processes, reporting and control systems, and infrastructure. Matthias Müller gave the following explanation: "Based on what we now know, in the past there were certain process deficits in some technical subdivisions in addition to misconduct on the part of individuals. This was true of the testing and release processes for the engine management systems, for example. The audit identified weaknesses and proposed remedial measures."

The focus now lies on creating more clearly structured and systematic processes. For example, the workflows and structures used for approving the software for engine management systems are being reorganized with more clearly defined and binding powers and responsibilities. Measures include multi-stage approval processes, an extended "four eyes" principle, clear functional separation between development, approval and quality assurance, and escalation procedures in the event of problems.

Emissions tests to be evaluated externally by independent third parties as a general principle

The CEO outlined the lessons that will be drawn from the past for the shareholders: "We have therefore decided that emissions tests at our company will, as a general principle, be externally evaluated by independent third parties in future. Real-world random testing of vehicle emissions behavior on the road will also be introduced. I strongly believe that our industry requires more transparency, courage and openness in dealing with this issue. And this is why we firmly support political initiatives in this area." All 31 measure sets identified by the internal audit will be systematically implemented. In some cases, this has already been completed. Currently, other departments within the Group are also checking their processes against a handbook of "golden rules" derived from the audit’s findings. In numerous projects groups, representatives of several brands are coming together to work on the design of optimized and more robust processes. "Moreover, the full results of the internal audit have been passed on to Jones Day, and can therefore contribute to identifying the responsible parties," Müller concluded. The external, independent investigation is receiving the wholehearted support of the Board of Management.

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