Sell Off? Volkswagen Group Rethinks Its Position on Supercars

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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.

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