Transforming Volkswagen

A line up of electric cars and a new head of American operations may have a bigger transformation on VW (especially in the U.S.) than anything since the first Beetle arrived in the U.S. in 1949.

Although many people think of the Beetle as the Volkswagen brand icon, the company is committed to making the electric vehicle (EV) its new brand icon (the Beetle Final Edition was announced at the 2018 LA Auto Show, as the vehicle is in its last year of availability in the U.S. market; the Beetle availability in Europe ended in 2017). To establish the EV as an icon, VW has the objective of selling, on a global basis, more than 1 million EVs annually by 2025.

Its ID. models, as the EVs are signified, are based on what VW calls “MEB,” a vehicle architecture that is engineered to accommodate a range of vehicle types, from a compact car to a minivan. (The first model that will be commercially launched is a compact; this ID. will go into production in VW’s plant in Zwickau, which is undergoing a €1.2-billion, three-year conversion to become the lead plant for MEB production. The plan is to build six models at the plant for three of the Volkswagen Group brands: VW, Audi and SEAT. The Zwickau plant will have an annual capacity of up to 330,000 vehicles. There will be other EV plants established, with production in China and North America, as well. By 2023 the Group plans to be producing 27 different MEB-based models.)

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One of the benefits of the broadly applicable MEB architecture is that it reduces engineering costs, which will help make the ID. models more affordable. At the beginning of 2018 Dr. Thomas Ulbrich was named to head a separate Board of Management division for e-mobility; he is quoted as saying, “We build cars for millions, not millionaires.”

In a Tweet posted on December 6, 2018 (twitter.com/jstackmann/status/1070616748951515136), Jürgen Stackmann wrote that the first ID. model would be offered “for the price of a modern Golf Diesel,” which, although not available in the U.S., is priced in the vicinity of $24,000 to $32,000. Which would make it less expensive than other purpose-built EVs on the U.S. market (i.e., the Tesla Model 3, which starts at $46,000 and the Chevrolet Bolt EV, which starts at $36,620—both not taking any available tax credits into account). And Stackmann also indicated that the range would be “up to” 341 miles, based on the WLTP (World harmonized Light vehicle Test Procedure).

To say that VW is going all in on electric vehicles is something of an understatement.

But while there is a growing number of EV sales in the U.S. market, driven largely by Tesla, the number is still comparatively small.

Last November, Scott Keogh, who had been the president of Audi of America, was named CEO and president of Volkswagen Group of America and head of the Volkswagen brand in North America, which means that Keogh has responsibilities for the U.S. operations of Audi, Bentley, Bugatti, Lamborghini, VW Credit, and all of the VW brand activities in the U.S., Mexico and Canada, including the plants in Chattanooga, Tennessee, and Puebla, Mexico.

Keogh is working, of course, to help increase the number of VW vehicles sold in the U.S. And with the Tiguan and Atlas crossover models, and more to come (e.g., a variant on the Atlas), he is gaining some traction.

But he recognizes that there is a transition occurring in the overall market, which is causing him to rethink approaches to addressing it: “There is a dichotomy in the market: there’s Old Auto and New Auto. Old Auto is driven by breathtaking scale, and doing whatever you can at the margins of everything.” As in addressing any conceivable slice of the market. Even though the slice may be comparatively small, Keogh says that because of scale, there is “some” money that could be made.

Then there’s New Auto. “It is going to be driven by electrification, new business models and new go-to-market strategies,” Keogh says, adding, “For us, this is a massive opportunity. A strategic opportunity as well as a brand opportunity.” And Keogh thinks that VW has the opportunity to migrate to the New Auto space.

“It is a very different thing to position yourself as defending the castle,” Keogh says. “There are a lot of brands and institutions that say, ‘I don’t want the world to change. The world is good. Pretty good. Good enough.’” That’s not the space he wants to inhabit.

“We want to make it a lot better. I think we’re going to get into a much more active mode and not defend in terms of proposing new things and bringing new things to life. I think MEB is the start.”

Yet there is a fundamental issue, that of people not buying a whole lot of EVs, with one month of F Series sales in the U.S. being equal to or better than the sales of all of the vehicles on the market with a plug, including plug-in hybrids.

“Do I think there is a market?” Keogh asks rhetorically about electric vehicles in America. “I do, 100 percent. I sat in the rooms with the executives and dealers who once said, ‘This Tesla thing is a joke. They can’t do this. They can’t do that.’ And lo and behold, here we are today. There is no dealer network. No advertising. No tools that an auto company is used to, and yet it is doing quite well.”

Keogh believes that the approach is to not out-Tesla Tesla, but, rather, to address what he calls a “universal truth” in the market: people are always looking for what’s new, what’s next.

He acknowledges that this isn’t going to be light flipping a light switch and suddenly there will be massive sales of EVs. But he does think that because EVs offer what’s new in a way that most existing vehicles don’t (Keogh says that telling consumers that there are a few more horsepower and a slight increase in fuel economy and a bigger sunroof isn’t all that compelling), there is going to be traction.

He says that surveys he’s seen indicate that the consumers’ level of consideration for EVs has improved markedly. “It has gone from ‘I don’t know what they are’ to ‘I know what they are but there’s no chance in hell that I am going to buy one’ to ‘I know someone who has one and I am sort of thinking about it.’”

What’s more, he thinks that when they bring the models to market that have a window sticker that is right in line with conventional vehicles with internal combustion engines, as well as with a range that doesn’t cause range anxiety, when these are products for the next-door neighbors, not the people who live in the mansion on the hill, then there will be a shift.

“You’re going to see reactions that you haven’t gotten to cars for 20 or 30 years,” Keogh says. “I am confident in that.”