Volkswagen AG's diesel emissions scandal, one of the most egregious environmental con jobs of the modern industrial era, has become a catalyst for what VW CEO Matthias Mueller claims is "the most comprehensive electrification initiative in the auto industry."
"The diesel crisis stretched us to the absolute limit in every possible way and to some extent continues to do so to the present date," Mueller told journalists at a March 13 press conference in Berlin. It was "an unmistakable wake up call" for "radical change," he said, detailing the German automaker's planned multibillion-euro rollout of electric vehicles, or EVs, and charging stations, including a nationwide network in the United States.
In September 2015, the U.S. Environmental Protection Agency issued Volkswagen a notice of violation of the Clean Air Act alleging the automaker installed software in certain VW, Audi and Porsche diesel cars designed to switch on vehicle emissions control systems during testing and off during real-world driving. The roughly 590,000 affected diesel vehicles in the U.S., which emitted nitrogen oxide levels up to 40 times the national limit, were only a small fraction of the about 11 million cars equipped with the software worldwide, VW later conceded. The scandal has cost the company approximately $30 billion in vehicle recalls, settlements, criminal and civil penalties, according to Reuters, and numerous lawsuits are still pending.
Nearly three years later, many EV advocates are still unsure whether they can trust the company. "If they say they are going to make these investments that is great, but I really want to see these cars in dealerships," Joel Levin, executive director of Plug In America, said in an interview. "Talk is cheap. Up until now, VW has not been a leader."
Mueller understands the skepticism surrounding his company's tainted corporate culture. "I am aware that many of you doubt that this can ever actually be a long-term success at Volkswagen," the CEO said in Berlin. "I can't really blame you for thinking that because this is the area where we are furthest from our goal."
'Roadmap E'
To be sure, VW, one of the world's largest carmakers with nearly 11 million vehicles sold in 2017, still views fuel-efficient diesel engines as "part of the solution, not part of the problem when it comes to climate protection," Mueller stated. The company continues to rely on diesel- and gasoline cars to fuel its record sales and profits. The automaker, nevertheless, has made its aggressive embrace of electric vehicles "crystal clear," he asserted, noting that it has secured €20 billion, or roughly $25 billion, in lithium-ion battery supplies to power its expanding electric fleet.
The battery orders, from China's Contemporary Amperex Technology Co. Ltd. and South Korea's LG Chem Ltd. and Samsung SDI Co. Ltd., are for electric vehicles in Asia and Europe. A decision on batteries for its North American electric vehicles is "imminent," Mueller added.
Of VW's planned electric outlays revealed to date, more than €50 billion targets battery purchases and another more than €20 billion is capital investments into EV manufacturing at 16 sites by 2022, possibly including at its factory in Chattanooga, Tenn. With its bid to introduce over 80 new electric vehicle models by 2025, and sell up to three million EVs a year by that time, VW anticipates it will require more than 150 GWh of annual battery capacity. This would account for about 37% of the 409 GWh of global EV demand for lithium-ion batteries Bloomberg New Energy Finance foresees by 2025, according to an October 2017 report from the research firm, up from an estimated 47 GWh in 2017.
As part of its technology development, VW is working on a next generation of lithium-ion batteries to boost energy density and range, Mueller said, in addition to cutting the amount of cobalt used in the batteries. The material, primarily sourced from the Democratic Republic of the Congo, has come under increasing geopolitical and price pressure, along with ongoing concerns over child labor.
'Transitional situation'
While the emissions scandal has cost VW roughly $30 billion so far, the company is on solid financial footing. It posted record operating earnings in 2017 of €13.8 billion on all-time high revenues of €230.7 billion, according to the VW's annual report released March 13. Over the past year, its share price has risen nearly 12%. Yet, as Volkswagen goes increasingly electric, it must figure out how to remain profitable.
"There's no secret that as we speak, [with] rather low volumes of e-mobility ... you cannot make money," VW CFO Frank Witter told journalists. "We are in a transitional situation."
Reducing battery costs to under €100/kWh is one of the keys to becoming profitable. Speaking on an earnings call with investment analysts, Mueller confirmed that VW was already "able to finish contracts" below that level.
To make money with EVs, Volkswagen must also boost its manufacturing volumes and help build the charging infrastructure necessary to support those volumes, according to the CFO. Progress is occurring on both fronts. After selling 43,000 VW-branded EVs in 2017, VW plans to hit 100,000 in annual EV sales by 2020 as it begins introducing new models across all its brands at a pace of one "virtually every month" starting next year, Mueller told journalists.
To power the cars, Ionity AG, a charging station joint venture between VW, Daimler AG, Ford Motor Co. and Bayerische Motoren Werke AG, is rolling out a fast-charging network across Europe, while VW subsidiary Electrify America LLC is in the early stages of a $2 billion investment into charging infrastructure and public awareness in the United States, as part of its settlements with California and the U.S. federal government.
Charging station economics, however, must improve, according to Brendan Jones, Electrify America's COO. "The model today is not sustainable," he told an e-mobility conference in Palo Alto, Calif., in February. The more EVs there are to utilize charging stations, the more sustainable the business model will become, he said.
