Volkswagen gives up on overtaking Toyota by slashing model range

Volkswagen’s days as one of the world’s biggest car makers are numbered after revealing plans to slash its model range to focus on fewer, more profitable vehicles.

The German company has its roots in producing a car that ordinary families could afford, hence its “People’s Car” name, but it will now abandon its aim of overtaking Toyota to focus instead on higher margins.

VW has 100 diesel and petrol models across its brands that include Seat, Skoda, Audi, Porsche, Bentley and Lamborghini. That number will fall to about 40 in Europe by 2030, Arno Antlitz, its finance chief, told the Financial Times.

Despite a production slump caused by a shortage of computer chips, car makers around the world have continued to post record profits. 

Volkswagen delivered 2.4m fewer cars in 2021 than in 2019, before the shortages started, but still made a profit of €20bn. The figure for 2020 was €11.6bn.

The company funnelled the chips it could obtain to the more expensive Porsche and Bentley ranges, delivering higher returns. 

The tactic was also adopted by German rivals BMW and Mercedes, which cut volumes and increased prices.

If Volkswagen presses ahead and removes cheaper models, other brands are likely to step in and fill the void to increase their own sales, said Mark Raban, chief executive of car dealer Lookers. 

However, the trend towards fewer models is probably here to stay, he said, as manufacturers try to cut costs to fund the development of electric cars and compete with the likes of Tesla.

“If you look at some of the pure [electric vehicle] brands that have come in, Polestar has only got three models, for example, three very successful models. So I think we will naturally see the number of models reducing to drive efficiency, and I think customers will be fine with that,” Mr Raban said.

VW is planning to sell a minority stake in its Porsche brand to raise the billions of euros necessary to build battery plants and production lines to make the electric switch. 

Those new electric cars may not be as immediately profitable for VW as previously thought, Mr Antlitz told the FT. The cost of battery components such as nickel have soared, although he still expected raw material prices to decline as the technology matures.

The Volkswagen Group sold 8.6m vehicles last year, down 6.3pc, with electric cars making up just over 450,000 of the total. The company is the European market leader for electric cars, accounting for about one in four sales and and is second in the US with a 7.5pc market share.

Elon Musk’s Tesla, which only makes electric cars, produced 930,000 vehicles last year, 82pc higher than in 2020.

VW expects deliveries this year to be about 5pc to 10pc higher as long as Covid and component disruptions do not affect production. Last month it warned that the war in Ukraine could affect the company’s supply chains and the global economy as a whole.

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