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posted: 11/14/2020 6:00 AM

VW boosts tech spending within $177 billion investment budget

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  • The Volkswagen headquarters in Wolfsburg, Germany, on Oct. 26, 2020.

    The Volkswagen headquarters in Wolfsburg, Germany, on Oct. 26, 2020.
    Bloomberg photo by Liesa Johannssen-Koppitz.

 
 

Volkswagen will reserve a bigger slice of its 150-billion euro ($177 billion) budget for electric cars and software in the next five years, stepping up technology spending to navigate a tectonic industry shift even as the covid-19 pandemic continues to roil markets.

Investments in battery-powered vehicles, autonomous driving and related future technologies will rise to about 73 billion euros, or half the company's budget through 2025, VW said Friday. That's up from 60 billion euros a year ago, or 40% of investments planned at the time.

"The transformation of the company and its brands as well as the strategic alignment on the core areas of mobility are implemented consequently," VW Chairman Hans Dieter Poetsch said in a statement. Board members greenlighted the additional funds at their annual financial-planning meeting.

The world's best-selling automaker proved relatively resilient so far to the biggest industry slump since World War II, helped by its large presence in China where demand for cars bounced back from a sharp contraction earlier this year. But surging infections in Europe and the U.S. risk undermining the recovery, and analysts have become increasingly worried about VW's ability to keep costs in check.

The group relies heavily on profits from the Porsche and Audi luxury-car brands and its Chinese joint ventures to fund its quest to challenge Tesla's electric dominance and keep incumbent rivals including Toyota at bay. The main VW passenger-car brand, which accounts for roughly half of global deliveries, swung back to profit in the third quarter, but niche marques including Bentley and Seat suffered losses after nine months.

At times when other manufacturers "effectively managed their break-even levels down, VW struggles to effectively manage its cost base down," Sanford C. Bernstein analyst Arndt Ellinghorst said in a note this week.

After massive investments in previous years, depreciation and amortization charges are bound to creep up, but "there are plenty of other fixed and variable costs that VW seems to be missing to address," he said.

After overcoming software problems that delayed the ID.3 electric hatchback's rollout in Europe this year, VW will go global in 2021 with its crossover sibling, the ID.4. It will be manufactured in Germany and China next year and sold in the U.S., where production will start in 2022.

The premium Audi brand will flank its e-Tron SUV with sportback and higher-performance GT versions. Porsche will launch a more spacious iteration of the Taycan. And Czech brand Skoda will roll out the Enyaq, a sister model to ID.4.

Audi has also taken over the lead for a new car-software unit that's developing a standardized architecture and operating system for the entire group following a management shake-up. VW said it will double investments in digitalization efforts to about 27 billion euros by 2025.