Volkswagen pledges $40 billion for self-driving and electric vehicle push

Volkswagen pledges $40 billion for self-driving and electric vehicle push
FRANKFURT—Volkswagen AG will spend more than $40 billion (U.S.) over the next five years to develop automotive technology for an era of electric robo-taxis.

With the unprecedented investment through 2022, s, autonomous-driving features and ride-hailing systems, the Wolfsburg, Germany-based company said Friday in a statement. Volkswagen is seeking to defend its status as the world’s biggest automaker as new competitors such as Tesla Inc. and Uber Technologies Inc. emerge as part of a disruptive shift.

“We are reinventing the car,” Volkswagen CEO Matthias Mueller said. “The auto industry is facing fundamental changes in coming years, which will provide great opportunities but also require us to put in tremendous effort,” he told reporters after the German manufacturer’s supervisory board signed off on the plan.

Alongside the automotive-technology spending, Volkswagen plans a five-year, nearly $85 billion budget for investment on property, plant and equipment, people familiar with the matter said earlier today. Volkswagen declined to comment on capital expenditures.

Volkswagen shares rose as much as 1.6 per cent to $189.38 and were up 0.5 per cent at 3:58 p.m. in Frankfurt. The stock has climbed 19 per cent this year, largely erasing the losses since the diesel-cheating scandal erupted in September 2015.

The plan puts Volkswagen on track to spend about $16.9 billion a year, compared to recent annual spending levels of $14.1 billion. The increase shows the pressure to manage the sweeping changes in the auto industry. CEO Mueller is prodding the company to take a leading role in battery-powered vehicles and unveiled a plan in September to make electric versions of all 300 models in the 12-brand group’s lineup.

At the same time, Volkswagen will be “more disciplined” with its spending and do better at leveraging the company’s enormous scale to save costs, the CEO said.

Volkswagen’s drive to get spending under control follows years of poor budget discipline and bloated costs squeezed returns. Mueller reiterated a pledge to reduce capital expenditures to 6 per cent of sales by 2020. The spending ratio ballooned to 6.9 per cent last year.

“Investors should welcome a commitment toward more contemporary investment discipline,” Arndt Ellinghorst, a London-based analyst at Evercore ISI, said in a note. “So far this year, VW has made good progress” with strong cash flow and investment likely to come in below 6.6 per cent of revenue this year.

Production of electric cars for European markets will largely be focused at a German factory in Zwickau. The factory will manufacture the first vehicles of the VW brand’s planned I.D. electric car range starting in 2019 as well as battery-powered models for sister brands Audi, Seat and Skoda. Electric cars for VW’s largest market, China, will be produced locally.

“Our goal is to become No. 1 in electric mobility and a globally leading provider of sustainable mobility,” Chairman Hans Dieter Poetsch said at the press conference. “We backed up this strategic goal with numbers.”
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