By on September 30, 2020

Volkswagen Group, the largest automotive manufacturer in the world, is reexamining its relationship with high-performance subsidiaries as it continues pouring money into electrification. Burned by a diesel emissions scandal of its own making half a decade ago, VW leadership now views electric cars as the only path forward  especially in regard to its more mainstream brands. While they aren’t getting identical treatments, VW, Audi, Seat, and Skoda are all presumed to be adding EVs to their production lines over the next few years.

Porsche’s long-term strategy also seems heavily dependent on battery power, but the road ahead is much less clear for ultra-premium brands like Lamborghini and Bugatti. With volumes and lineups order of magnitudes smaller than the core brands, Volkswagen would be incurring a gigantic expense to develop upper-echelon performance EVs that might not appeal to their existing fans. The same goes for upscale motorcycle brand Ducati as the two-wheeled world has become divided on electric and gas-powered bikes. Volkswagen’s management board and directors have decided the situation calls for an all-hands meeting in November to decide what should be done and how to remain financially prudent in a period of economic strife.

Corporate leadership has already messaged that VW is overtly committed toward electrification wherever possible. In addition to being seen as virtuous by a subset of the population, it also makes it easier for the brand to adhere to increasingly stringent emission mandates around the globe and directly aids its quest to monetize vehicle data while giving itself more direct control of a vehicle’s on-board systems. But the process has cost it and many other legacy brands truckloads of money, making it difficult to rationalize further expenditures before EVs have proven themselves truly profitable. But that’s exactly what has to happen to make the transition complete.

“We are constantly looking at our brand portfolio, this is particularly true during the phase of fundamental change in our industry. In view of the market disruption, we must focus and ask ourselves what the transformation means for the individual parts of the group,” Volkswagen CEO Herbert Diess told Reuters this week. “Brands must be measured against new requirements. By electrification, by reach, by digitalisation [sic] and connectivity of the vehicle. There is new room for manoeuvre [sic] and every brand must find its new place.”

While Diess believes the company’s valuation will improve as the market begins to comprehend how profitable its electric vehicles can ultimately be, he acknowledged investment spending will remain high as he attempts to prove that theory. Though there may be few alternatives as Europe and China continue pressing ever stronger regulatory mandates on tailpipe emissions  both of which may be joined by the United States if American voters have a change of heart this November.

From Reuters:

Besides building the common electric vehicle architecture that will underpin many of its bigger brands, Volkswagen needs to free up cash to develop connected and autonomous vehicle technology and new forms of mobility services.

Last year, Volkswagen sold 4,554 Lamborghinis, which start at about $200,000 and cost millions for special editions. It sold 82 Bugattis, which have seven-digit price tags, and just over 53,000 Ducati motorbikes.

But some company insiders question whether it’s worth investing scarce resources to produce silent electric versions if they don’t appeal to fans of the noisy, high-octane brands.

Unlike many U.S. firms which can tap more liquid and deeper capital markets to raise money for investment, Volkswagen relies more on cash flow from sales of combustion-engine cars to fund its shift to battery-powered vehicles.

Volkswagen Group is hoping to raise its market value to 200 billion euros by 2025 but notes that it’ll have to spend quite a bit of money to make sure it’s compliant with new EU proposals aimed at cutting carbon dioxide emissions by 50 percent before 2030. Diess said the targeted sum was aspirational but not impossible and would become easier to achieve as the company’s improved software (the current code has had some issues) spreads throughout its product lineup over the next few years. It’s also expecting to see more support form labor organizations and investors keyed up about electrification, though internal combustion vehicles will remain the industry’s bread and butter for a while.

“The crucial thing now is to manage the transition to electromobility. That is by far the greatest lever for us in this phase,” Diess said. “Individual mobility will change dramatically. Electrification only accounts for 10 to 20 [percent] of this change. The big push will come from the increasing intelligence of vehicles.”

November’s corporate review of VW’s smallest subsidiaries may result in the increasingly popular technology partnerships or some form of restructuring. Two executives Reuters refused to name also suggested they might be put on sale  which seems the most likely scenario to us. Croatian supercar firm Rimac Automobili is already rumored to be in the process of acquiring Bugatti from Volkswagen and the German automotive conglomerate has likewise hinted it might offload a few more subsidiaries to focus on electrification and emissions compliance.

[Image: nrqemi/Shutterstock]

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14 Comments on “Sell Off? Volkswagen Group Rethinks Its Position on Supercars...”

  • avatar

    Who needs Bugatti? The excitement and buzz from the idea of a Skoda EV is almost killing me.

  • avatar

    Good riddance to the artifacts of Piëch’s empire building in the 90s. Even Marchionne called Bugatti the biggest waste of capital he has ever seen.

    I don’t see a mention of Bentley, but that operation has lost money some years. The numbers for the other halo brands are buried, so they don’t show up in the financial reports.

    I don’t understand why they insist on offering Skoda and Seat models in the same brackets and same markets as VW, or offering Skoda or Seat at all. Doesn’t make any more sense than GM offering both Chevy and Pontiac, or Chrysler offering both Dodge and Plymouth, when there is so little differentiation between the brands. All the are doing with three mass market brands is tripling their costs.

    • 0 avatar

      I hear you, but it would be a shame if these magnificent machines stopped being made. Although I’ll certainly never own one myself, I am damn glad they exist and their demise would render the automotive landscape incrementally more bland, boring, and soulless.

      I actually wish they would do the opposite and double-down on the ridiculousness a bit, otherwise there’s no point in putting up with the marginal reliability; there’s always Toyota, Honda, Ford, etc. if right-brain inoffensiveness is the objective. I would love to see them do something totally unexpected and bring back 2020s iterations of the Phaeton, W8 Passat, etc.

  • avatar

    Steve 203: “…or both GMC and Chevrolet trucks. If GMC is ‘Professional Grade’, what is Chevrolet? Amateur Grade? How stupid is that ad campaign.

    • 0 avatar

      @snakebit – I do believe the Silverado is “Work Grade” and the Sierra is “Professional Grade”. Think of the guys at the job site in the clean clothes and white helmets holding the blueprints versus the dudes with the orange hardhats and callused hands with dirt under their fingernails.

  • avatar
    SCE to AUX

    The question isn’t whether the supercar brands should be electrified. There is no need for that.

    The question is whether these brands are profitable. If they were, VAG wouldn’t consider jettisoning them.

    My guess: the supercar brands are dogs, requiring inordinate resources to keep afloat which could be used on other more profitable projects.

    • 0 avatar

      I think the supercars definitely need electrification. It’s the only way to keep them near the top of the performance heap. Electrification could also make them more profitable. Just take an existing EV platform/skateboard and make it four motors. Add leading-edge lighter-weight battery tech and it’s done. For example, they could drop a lighter-weight 2 seater body on the Taycan and they’d be done. Sell them for $500k each. Lamborghini Picador would be the perfect name.

    • 0 avatar

      I imagine that the brands could make sense as repositories of “good will” or “brand equity”. As such, they can function as cheap advertising. But maybe VW sees the worm turning and feels that being associated with these sorts of cars is damaging their image. In that case, it doesn’t make sense to pay for bad publicity.

  • avatar

    For VW to internally debate which brands are worth keeping even before they have sold any mass market EVs is interesting. To me this is an admission of the fact that EVs are very difficult to differentiate from one another from the driver seat.

    If your Porsche, Lambo, Bentley, Bugatti, and Audis are all silent, AWD, and fast, what really makes them different? Styling? That’s honestly not enough of a reason to retain all of these brands. Same with mass EVs – Skoda, Seat, VW all share platforms. Not enough differentiation between them to justify keeping all the brands; probably better to consolidate to a clearer hierarchy of speed and prestige.

    VW Group has made is clear they are going all in on EVs. To amortize the R&D costs across multiple brands only makes sense, but their Group portfolio is excessive if the cars don’t each have a niche to fill. They would probably do just fine with VW, Audi, Porsche as the core ladder and jettisoning many others.

  • avatar

    Sell them to Russian and Chinese oligarchs and be done with it. Let oligarchs to pour money down the drain to satisfy their oversized egos.

  • avatar

    I must be missing something when they say EVs will replace ICE cars.

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