Volkswagen's affordable brands to share more parts in profitability push

Volume models make up about 80% of the German car maker's global deliveries

Newly manufactured electric vehicles loaded on a freight train for shipping at the Volkswagen plant in Germany. Bloomberg

Volkswagen's main volume nameplates will share more parts and factories to boost efficiencies as the car maker battles to lift profitability in the more affordable range of its portfolio.

To differentiate between its namesake VW, Seat and Skoda brands, Europe’s largest car manufacturer will emphasise individual design, the new head of VW’s main car brand, Thomas Schaefer, said in an interview.

The company has long struggled to rein in complexity of multiple engine and trim variants across its sprawling offering that includes the upscale VW Touareg SUV and the Skoda Fabia.

“In the past, we wasted too much time being preoccupied with each other,” Mr Schaefer said. “The competition is outside, it’s not within the company.”

Thomas Schaefer, chief executive officer of Volkswagen's VW brand. Bloomberg

Volume models make up about 80 per cent of VW’s global deliveries, making them “the core of the company”, Mr Schaefer said. VW is aiming for an efficiency gain of 20 per cent, he said.

As part of the push, production of the sturdy VW Passat sedan in Germany and Skoda’s flagship Superb family car in Czech Republic will shift to Slovakia to help reduce internal overlaps.

VW must become more competitive in the face of rivals ranging from Tesla to incumbent manufacturers like Stellantis NV, Mr Schaefer said.

One key battleground is the US, where the company plans to shed its niche market role, Mr Schaefer said. VW returned to profitability in the US last year as it expanded electric-vehicle sales.

VW’s volume segment plans to produce more of its electrified vehicles in the US, including possibly two SUVs, Mr Schaefer said.

The car maker has set up a battery-research lab in the country and is exploring adding a large-scale cell factory, he said.

“For us, the US offers promising growth potential, which we can drive through the electrification of our lineup."

The executive said he’s also optimistic that VW’s efforts in China, where the car maker plans to overhaul its products to better meet the demands of local customers, would prove successful.

Chief executive Herbert Diess has made the company’s push to defend market share in the world’s largest auto market a key priority. He called China the company’s “second home market”, telling staff in Germany last month that a large part of their bonuses were generated there.

VW’s mass-market brands sharing more factories and improving co-operation on production and development will help deliver on the car maker’s efficiency goal, Mr Schaefer said.

While Volkswagen group generates bumper profit and operating cash flow, the luxury Audi and Porsche nameplates have long padded the car maker’s results. Attempts to lift returns at the main VW brand by streamlining processes have so far yielded modest results.

VW is set to add more popular crossover and SUV models to its mass-market lineup to stay competitive, Mr Schaefer said.

The segment, which also covers VW’s new electric model range code-named Trinity, “offers the biggest growth potential for the brand”, he said.

VW plans to break ground on a new €2 billion ($2bn) electric car factory that will make the Trinity marque in 2023. The first Trinity car will roll off the production line in 2026.

Looking towards the third and fourth quarters, Mr Schaefer said he was cautiously optimistic that the chip crunch would ease and that the industry would see fewer supply constraints.

“The prospects for the second half of the year are good, but overall, the situation remains volatile,” he said.