Volkswagen steers away from electric-car-or-bust strategy that rankled rivals

The company is not U-turning from electric cars entirely.

Volkswagen’s electric vehicles were once central to its future, but the company last week said it would need more plug-in hybrids as EV sales decelerate.

This marks just the latest adjustment VW has made to its electrification strategy after the company botched several model releases and fell behind in China, where local brands now dominate.

The manufacturer has also shelved efforts to seek outside investors for its battery unit and scrapped plans for a €2bn EV factory in Germany.

In fact, the automaker is selling so many cars still running on combustion engines that it is on track to overshoot its emissions allowance next year, leading chief executive Oliver Blume to ask European regulators for leniency.

It is a sharp turnabout from only three years ago, when VW’s aggressive lobbying for EVs in the EU opened up rifts between the company and some of its peers in the region.

VW had little choice but to lean into its electrification messaging after having bet heavily on “clean” diesel engines. That wager went sideways when the company was caught cheating on emissions tests, which forced a hard pivot to battery-powered vehicles. 

By 2019, then-chief executive Herbert Diess announced it would launch as many as 75 all-electric models over the next decade.

His EV-or-bust strategy — Mr Diess argued automakers needed to change quickly if they wanted to survive — rankled executives from Turin to Tokyo, who wanted more time and flexibility to make the transition from combustion cars. He even lauded what he saw as an early-mover advantage.

While those spoils have not been as plentiful as VW hoped, the company is not U-turning from electric cars entirely.

Mr Blume is striking partnerships with companies including Xpeng and preparing a new EV brand in China, offering models kitted out with gadgets like an in-car avatar to win back young consumers lost to BYD and Tesla.

VW also has been in discussions with European peers, including Renault, about developing cheaper EVs to win over mass-market car buyers.

Honda

Meanwhile, Honda said it would invest €59bn on its electrification strategy this decade as it expected demand for battery-powered vehicles would rebound from short-term headwinds that are stifling purchases.

The spending, which will run through fiscal 2031, will cover areas including software, research and development, and establishing supply chains in key markets like the US, Canada and Japan, the company said in its business plan update. The carmaker maintained its goal of battery and fuel-cell EVs accounting for 100% of global sales by 2040.

As part of that target, Honda will roll out seven new EV models globally by 2030, chief executive Toshihiro Mibe said at a briefing in Tokyo.

It plans to start selling two new EV models in China later this year, and will introduce an EV with a swappable battery to Japan by the end of fiscal 2026.

Honda has been benefiting from the rising appeal of hybrid vehicles as higher interest rates and waning subsidies hurt demand for fully battery-powered cars. And while the company will continue to boost hybrid offerings — it plans to sell one million this year and is laying the groundwork to build capacity to two million units annually — its investment plans signal automakers are bullish on full electrification over the longer term.

- Bloomberg