Volkswagen to invest $193 billion over 5 years to hit EV target

By Victoria Waldersee

BERLIN (Reuters) – Volkswagen plans to invest 180 billion euros ($193 billion) over the next five years in areas including battery production and its North American operations, it said on Tuesday, though the pace of spending will fall from 2025.

As Europe’s leading carmaker, Volkswagen makes these investments to expand its market share for battery-powered cars.

It is working towards EVs accounting globally for 50% of its global sales by 2030. More than two-thirds (or 56%) of its five-year investment budget are allocated to electrification, digitalisation and other projects. This is up from the 56% it released a year ago.

Chief Financial Officer Arno Anlitz stated that the difference in the current plan is due to increased investment in its battery business, raw material, and a $2B plant for Scout brands.

“We expect to reach 20% electromobility in new sales from 2025 and are already investing two-thirds in that area,” Antlitz said. “On the other hand we need to keep combustion engines competitive… that is a double burden.”

The automaker claimed it is finalizing high-performance technology for its luxury and premium brands. This could be applied in the medium-term across the company in an effort to improve the operations of its Cariad software unit.

Herbert Diess was the former CEO of the unit. The company suffered an operating loss in excess of budget and fell behind its goals. It had 800 million euros in revenue, according to Tuesday’s annual report.

Volkswagen shares were 3.1% lower at 0958 GMT Tuesday. This was at the bottom of Frankfurt’s DAX index. Analysts at Jefferies described the final fourth-quarter results as follows: “weak”.

Volkswagen exceeded analysts’ expectations for 2022 in terms of revenues, but fell short of the consensus estimate for earnings after interest taxes by 3%. Logistics issues also weighed on the fourth quarter results.

The latest investment plan includes a ringfenced allocation of up to 15 billion euro for raw materials and battery plants.

Thomas Schmall, a board member, stated Monday that the European carmaker’s needs are being met by the three plants currently in development and that the company is not in any rush to find new locations. It also announced that its first North American plant will be built in Canada and will begin production in 2027.

Graphic: VW outperforms EU rivals- https://fingfx.thomsonreuters.com/gfx/mkt/byvrlqzdxve/VW.PNG

The goal of the investment decisions is to fulfill a 10-point plan created by Oliver Blume, Volkswagen CEO after he took over in September.

Volkswagen will share the results of a ‘virtual equity story’ exercise instigated by Blume, which had all of the company’s brands from Audi to Bentley prepare for a listing as a training exercise, at a capital markets day on June 21.

Battery unit PowerCo is the most likely stock market candidate. Reuters reported that investors were in talks to buy the division, ahead of a partial listing.

The optimistic outlook by the carmaker for next year sent shares soaring. They forecast a 10%-15% rise in revenue, 14% higher deliveries and supply chain challenges aside.

($1=0.9338 euros)

(Reporting from Victoria Waldersee; additional reporting by Christoph Steitz; Editing done by Rachel More, Jamie Freed and Muralikumar Aantharaman