Volkswagen Group is giving its brands including Audi and Skoda more independence on cost savings and efficiencies to make the automaker more nimble in the electric-vehicle shift and improve returns.
The group has set “performance programs” for each brand, allocating them capital and setting a specific return on sales target, but delegating responsibility to the brands for how those targets are reached. Management incentives will be tied to meeting targets.
“It’s like in a fitness center where everyone on the team is training, and as everybody gets fitter, so does the Volkswagen Group,” CEO Oliver Blume said at the automaker’s Capital Markets Day on Wednesday at Germany’s Hockenheimring racing circuit.
VW will also focus on speeding up product development at its Cariad software unit, Blume said.
‘Value over volume’
The group is targeting to raise returns to 9-11 percent by the end of the decade, pursuing a strategy of “value over volume.” Last year, its operating margin rose to 8.1 percent. Its Porsche sports-car business, which has since been spun off, underpinned the result.
The group targets annual sales growth of 5 percent to 7 percent on average until 2027.
Chief Financial Officer Arno Antlitz said: “If you look at how Volkswagen operated in the past, often we had a fixed cost growth and we wanted to outgrow that fixed cost.”
The group needs “to change that strategy to our value over volume approach, be very disciplined on fixed cost, be very disciplined on investment and rather focus on value,” he said.
In China, where internal combustion engine sales still provide high revenues for the carmaker, VW has slightly reduced its target for battery-electric vehicle sales in the next 1-2 years and is instead focused on protecting margins, Antlitz said.
The new revenue growth target is a marked jump from VW Group’s performance in recent years, with revenue growing just 1.1 to 1.2 percent a year in the last two years, and 0.7 percent in 2018-2019 prior to the pandemic.
VW Group is planning separate capital markets days for each brand over the coming months to introduce those targets, sources close to the company told Reuters last Friday.
Main target
The group is working through software issues that have delayed key models, needs to address sliding market share in China and bolster its EV lineup to catch up with Tesla.
The stumbles are weighing on VW Group’s share price. The automaker is now valued at around 72 billion euros ($78.6 billion) — some €30 billion less than the Porsche business it listed last year.
Blume’s main target is the flagging VW brand, which for years has struggled to keep up with competitors such as Stellantis to leave the company overly dependent on luxury labels Audi and Porsche.
VW brand is set for a sustained boost in earnings of about 10 billion euros in 2026. Getting there will hinge on talks with VW’s labor unions who have the power to significantly water down any measures.
Despite the challenges, the company retains significant investment firepower. VW has earmarked 180 billion euros as part of a rolling five-year plan that will be spent on software, EVs and turning around its business in China.
In the medium-term, the pace of spending is set to slow, the company said Wednesday. The investment ratio for the group will drop to below 11 percent by 2027 and to around 9 percent by 2030, it said.
Pushing through deep changes at the carmaking behemoth has historically been challenging to any CEO who needs to cut through notorious infighting among a number of powerful factions.
These include the Porsche-Piech billionaire family and labor unions that hold half the seats on the company’s supervisory board. The state of Lower Saxony, which tends to side with labor representatives, also holds sway through a 20 percent voting stake.
Reuters contributed to this report