To regain its green credentials after Dieselgate, as the affair came to be known, the German carmaker pivoted — aggressively — to electric vehicles. In March 2021, Volkswagen said it aimed to sell more electric vehicles (EVs) than Tesla globally by 2025. That, too, hasn’t gone as planned. Early models flopped because of VW’s buggy software and flagging consumer interest in battery-powered autos, particularly in Europe. The company was slow to roll out competitive EVs in China, where local manufacturers now dominate the market. And US buyers have never really gotten very excited about the company’s electric offerings.
Now Volkswagen is trying to pivot once again. Since taking the helm three years ago, CEO Oliver Blume has built partnerships with software and EV start-ups to improve his company’s products. Audi, Porsche and the VW nameplate are cutting costs to bolster earnings. And more affordable brands such as Cupra and Skoda are making inroads with younger, price-conscious buyers.
In September, Volkswagen plans to unveil the first of its next-generation EVs, the compact VW ID.2all, a EUR25,000 hatchback meant to kick-start an era of fresh growth. Blume speaks of what he calls a “model offensive,” with 30 new cars in 2024 and the same number expected this year. “The current environment is extremely challenging,” Blume says. “And we’re holding our own.”
The group’s vehicle sales increased in the second quarter, driven by a 38% gain in global EV deliveries from the previous year. VW’s updated ID models — a hatchback, an SUV crossover and a full-size sedan — have garnered praise for fresh interiors and revamped software. In Europe, its latest battery-powered cars have outsold Tesla’s in recent months, benefiting in no small part from Elon Musk’s political antics, but also from improved quality. The group is on track to be Europe’s top EV maker for 2025, ahead of Tesla, Stellantis and Renault. And in China, the first models tailored to local tastes, developed with a Chinese partner, are due to hit showrooms next year.
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Chief Executive Officer Oliver Blume has built partnerships with software and EV startups to improve his company’s products / Photo: Wang Zhao/Getty Images via Bloomberg
‘Strategic core’
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Blume is betting he can succeed in his EV push where his predecessor, Herbert Diess, faltered. The latter, brought on to lead the VW brand just a few months before the diesel scandal broke, at the time quickly declared that electric cars would become the division’s “strategic core.” That move convinced the board that he was the right person to remake the industrial behemoth for the electric age.
He created an in-house team to tackle software and bolstered autonomous driving efforts — areas that had largely been left to suppliers. During a “Power Day” presentation in 2021, Diess pledged to set up six battery factories in Europe, develop dozens of electric models and sell as many as three million of them by this year. The bullish bet turned the automaker from a corporate dinosaur into a stock market darling, briefly making it Germany’s most valuable company.
But Volkswagen stumbled right out of the gate. Drivers of VW’s long-delayed ID.3 hatchback complained about sudden braking because of a temperamental traffic sign detection system. And while Tesla could update its software by pushing downloads directly into customers’ cars, VW owners had to stop by the shop for new lines of code. “The ambitions of the ID project were huge,” says Bernstein analyst Stephen Reitman. “But clearly there was a belief that they could just spend their way into becoming a software powerhouse.”
As Volkswagen’s engineers floundered, China was quietly building an EV empire to strike back at the German company — the bestselling brand in the world’s biggest auto market for decades. By the time the country began to reopen after the pandemic, local manufacturers led by BYD and Nio had doubled the number of hybrid and electric models on offer, many of them cheaper and better than Volkswagen’s products. In 2023, BYD bounced VW out of the top spot in the market.
Under pressure
The misfires cost Diess his job, and Blume — at the time running Porsche — took over as group CEO. With sales dropping and margins under pressure, the VW veteran (he started as a trainee at Audi in 1994) installed allies in leadership positions and began walking back some of Diess’s costly projects. He downsized ailing software unit Cariad, tempered Volkswagen’s battery ambitions and clinched some US$8 billion ($10 billion) in partnerships with Xpeng in China and Rivian Automotive in the US to help develop EV technology and software.
In December, Blume struck a deal with labour leaders to reduce headcount at the main VW brand by 35,000 and slash overcapacity at its German factories. Porsche and Audi are scrambling to implement cost-cutting drives of their own; the two are among the brands most exposed to US President Donald Trump’s duties, as all the cars they sell in the US are imported. And both are shedding market share in China, where luxury spending has collapsed in the country’s real estate crisis.
In July, after repeated cuts to profit projections, Blume sent a memo to employees saying that Porsche’s business model “no longer works” and that management needs to seek deeper cost cuts. Audi, meanwhile, is contending with a stale lineup after cancelling or postponing several model launches. And in the US, Volkswagen’s Scout EV brand is building a new factory in South Carolina to make the rugged pickups currently missing from its portfolio. But demand for electric trucks has shifted into reverse, and Trump’s removal of the US$7,500 EV subsidies makes the brand’s prospects uncertain.
Yet Blume insists the nascent turnaround is real and VW can maintain the momentum with the model blitz, including several electric cars to be featured at the Munich Auto Show in September. Crucially, just as Volkswagen did in the wake of Dieselgate, Blume stresses that the company must adjust to new market realities: an EV-phobic US president, anaemic uptake of battery-powered cars in Europe and growing interest in plug-in hybrids in China. “We need to keep working on our business model,” he says. “The conditions of the past few decades — free trade, global economic growth, limited competition — no longer apply.” — Bloomberg Businessweek
