Volkswagen accelerates push into electric cars with $40 billion spending plan

WOLFSBURG/HAMBURG (Reuters) - Volkswagen (VOWG_p.DE) approved a 34 billion euro ($40 bln) spending plan on Friday that accelerates its efforts to become a global leader in electric cars.

The world’s largest carmaker by unit sales will spend the money on electric cars, autonomous driving and new mobility services by the end of 2022, it said after a meeting of its supervisory board.

“With the planning round now approved, we are laying the foundation for making Volkswagen the world’s No. 1 player in electric mobility by 2025,” Chief Executive Matthias Mueller told a press conference.

The carmaker’s projected spending is significantly bigger than its pledge two months ago that it would invest more than 20 billion euros on electric and self-driving cars through 2030.

Electric and autonomous vehicles are widely seen as the keystones of future transport, but pioneers such as Tesla Inc and other manufacturers are still working out how to make money on them as poor charging infrastructure, high battery costs and electric vehicles’ still limited driving range weigh on customer demand.

Until it admitted two years ago to cheating on U.S. diesel emissions tests, Volkswagen had been slow to embrace electric cars and self-driving technology.

But the emissions fraud, and new Chinese quotas for electric cars, prompted a strategic shift to zero-emission and self-driving technology, and Volkswagen now has one of the most ambitious targets in the industry. It has pledged to offer an electric version of each of its 300 group models by 2030.

The group said its total investments in electric vehicles capacity and projects will amount to about 72 billion euros by 2022, confirming an earlier Reuters story.

To fund greater spending on electric vehicles, it will draw on cost savings in all areas of operations, including vehicle development, administration and manufacturing, as well as strong cash reserves.

Its net liquidity still stood at around 24 billion euros after nine months even though about 17 billion euros of funds have been paid out to cover costs for its dieselgate scandal. VW’s core autos division has made cost savings of about 1.9 billion euros since the start of this year, nearly meeting budgeted cost cuts for the full year.

Mueller said VW will maintain spending discipline in order to shoulder the increased investments in new technologies while it grapples with billions of dollars of costs for its emissions scandal.

COST CONTROL

The carmaker aims to cut overall spending on factories, equipment and technology to 6 percent of automotive sales by 2020 from 6.9 percent last year, counting on growing revenue and deliveries in coming years.

Wolfsburg-based VW wants to increase the share of electrified vehicles to 3 million cars, or a quarter of group deliveries, by 2025. The forecast assumes that group auto sales will keep growing to reach about 12 million a year by the middle of next decade from 10.3 million last year.

“Investors should welcome a commitment towards more contemporary investment discipline,” said Evercore ISI analyst Arndt Ellinghorst who has an “outperform” rating on VW shares.

“So far this year, VW has made good progress, lowering both capex and cash R&D costs.”

Works council chief Bernd Osterloh said spending targets approved on Friday would strengthen VW’s 10 German factories, noting that 3 billion euros alone will be invested at the base plant in Wolfsburg, including to prepare for the launch of the next-generation Golf hatchback.

Investments of more than 1 billion euros will be assigned to a plant in Zwickau, eastern Germany to ramp up electric-car production at the site, which in future will only make zero-emission vehicles, VW said.

Output of the combustion-engine Golf hatchback as well as the Golf and Passat station wagons will be shifted from Zwickau to the underutilized factories at Wolfsburg and Emden, VW said, confirming a Reuters story.

“It was long and hard bargaining to safeguard the interests of the employees but I think we can live well with the compromise,” Osterloh said.($1 = 0.8481 euros)