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November 13, 2020 10:45 AM, EST

VW Boosts Tech Spending Within $177 Billion Investment Plan

Robotic arms scan the body of a VW ID.3 electric car.Robotic arms scan the body of a VW ID.3 electric car at the automaker's factory in Zwickau, Germany. (Krisztian Bocsi/Bloomberg News)

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Volkswagen AG will reserve a bigger slice of its 150 billion euro ($177 billion) budget for investment in electric cars and software in the next five years, stepping up technology spending to navigate a tectonic industry shift even as the COVID-19 pandemic roils markets.

Investments in battery-powered vehicles, autonomous driving and related future technologies will rise to about 73 billion euros, or half the company’s budget through 2025, VW said Nov. 13. That’s up from 60 billion euros a year ago, or 40% of investments planned at the time. The numbers don’t include VW’s Chinese joint ventures, which have a separate, self-funded investment plan.

“The transformation of the group and its brands and the strategic focus on the core areas of mobility will be consistently implemented,” VW Chairman Hans Dieter Poetsch said in a statement. Board members greenlighted the additional funds at their annual financial-planning meeting.

VW's global deliveries resume decline after one month of growth.

The world’s best-selling automaker has proven relatively resilient so far to the biggest industry slump since World War II, helped by its large presence in China where demand for cars bounced back from a sharp contraction earlier this year. But surging infections in Europe and the U.S. risk undermining the recovery, and analysts have become increasingly worried about VW’s ability to keep costs in check.

The group relies heavily on profits from the Porsche and Audi luxury-car brands and its Chinese joint ventures to fund its quest to challenge Tesla Inc.’s electric dominance and keep incumbent rivals including Toyota Motor Corp. at bay. The main VW passenger-car brand, which accounts for roughly half of global deliveries, swung back to profit in the third quarter, but niche marques including Bentley and Seat suffered losses after nine months.

At times when other manufacturers are managing their break-even levels well, “VW struggles to effectively manage its cost base down,” Sanford C. Bernstein analyst Arndt Ellinghorst said in a note this week.

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After massive investments in previous years, depreciation and amortization charges are bound to creep up, but “there are plenty of other fixed and variable costs that VW seems to be missing to address,” he said.

VW reiterated a pledge on Nov. 13 to shrink its sprawling vehicle lineup and fade out slow-selling model variants and engine-transmission combinations to save costs.

After overcoming software problems that delayed the ID.3 electric hatchback’s rollout in Europe this year, VW will go global in 2021 with its crossover sibling, the ID.4. It will be manufactured in Germany and China next year and sold in the U.S., where production will start in 2022. The group will spend 35 billion euros on battery-electric vehicles and another 11 billion euros to develop hybrid versions of existing models. VW said it will launch about 70 all-electric vehicles by 2030, with 20 of them already in production.

The premium Audi brand will flank its e-Tron SUV with sportback and higher-performance GT versions. Porsche will launch a more spacious iteration of the Taycan. And Czech brand Skoda will roll out the Enyaq, a sister model to ID.4.

Audi has also taken over the lead for a new car-software unit that’s developing a standardized architecture and operating system for the entire group following a management shakeup. VW said it will double investments in digitalization efforts to about 27 billion euros by 2025.

“In the coming years, it will be crucial to also reach a leading position in car software in order to meet people’s needs for individual, sustainable and fully connected mobility in the future,” VW CEO Herbert Diess said.

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