Volkswagen Accelerates Investment in Electric Cars as It Races to Overtake Tesla

Volkswagen Accelerates Investment in Electric Cars as It Races to Overtake Tesla

German company aims to become the world's leading maker of electric vehicles

Volkswagen AG plans to invest around $86 billion in the development of electric vehicles and other new technologies over the next five years, as the world's largest auto maker races to overtake Tesla Inc. as the leading maker of electric cars.

With the shift to electric cars, connected vehicles and an increasingly digital manufacturing process, the auto industry is amid its biggest transformation in a century.

Volkswagen said Friday that it would allocate around half of a planned $177 billion in R&D and capital expenditure to accelerate development of technologies such as digital factories, automotive software and self-driving cars.

The German company, which sold around 11 million vehicles in 2019, updates its five-year investment plans every November. This year's revised plan underscores its efforts to build on its already vast investment in electric vehicles and digital technology.

VW launched the ID.3 all-electric compact car this year, the first model in a new generation of all-electric vehicles. The car has received complaints about quality and software features, prompting reviewers to score it below Tesla's equivalent model.

However, the car has sold well, pushing VW past Tesla in September as the biggest electric-vehicle maker in Europe by sales.

VW Chief Executive Herbert Diess has often complained about the company's failure to catch up with Tesla quickly, especially in terms of software, which has been a weak spot.

"In the next few years it will be important to also take a leading position in vehicle software," Mr. Diess said Friday. "Only as a digital mobility company can we satisfy people's needs for individual, sustainable and fully networked mobility in the future."

Volkswagen has earmarked about €150 billion in capital expenditure for 2021 through 2025, of which €73 billion will be invested in "future technologies," an increase from €60 billion in the previous five-year planning round.

The biggest change is the acceleration of software development, which includes everything from fixing the problems with the ID-series to moving faster to develop self-driving vehicles and connecting the company's more-than 120 factories to the cloud.

The company said it would double its investment in digitization to €27 billion over the next five years. It is also increasing its investment in electric vehicle development to €35 billion, from €33 billion in the previous round. Another €11 billion will be spent creating hybrid electric versions of all of its main models.

Volkswagen is one of the industry's biggest research and development spenders. Its five-year plan doesn't include additional investment in China.

Because Volkswagen doesn't consolidate its joint ventures in China, the investment there is financed out of the local business, which sold four million largely locally produced vehicles last year.

The annual planning rounds are highly political affairs. This year, fraught with upheaval in global markets, VW has committed money to developing new vehicles in Germany, in a nod to the state of Lower Saxony, which holds a blocking minority stake in the company, and the IG Metall trade union, which controls half of the seats on VW's supervisory board.

The company unveiled plans to build a new sport-utility vehicle at its main German plant in Wolfsburg, with production slated to begin in 2024. In Hanover, where the company's light utility vehicle manufacturing is based, it will add three fully electric SUVs.



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