[Music] at a corporate meeting held this past July the head of Volkswagen Passenger cars didn't mince words he told a room of VW managers that the metaphorical roof is on fire the company had become too complex slow and inflexible they need to cut 10 billion EUR of cost over the next 3 years in September of 2024 Volkswagen group CEO Oliver Bloom revealed that this cost cutting plan could include shutting down some of the company's factories in Germany if this happens it would be a huge deal in its 87-year history Volkswagen has never shut down a factory in its home country but competition today is fiercer than it's ever been in the past especially from Chinese EV makers who are now turning out millions of EVS at a far lower cost than what VW can match in this video we'll delve into the dire situation Volkswagen finds itself in we'll also explore what this can tell us about the competitiveness of the German economy the Volkswagen group is a massive automobile conglomerate that owns many different brands the largest brand they own is their namesake Volkswagen brand which sold 5. 3 million cars in 2023 the second biggest is Audi which sold 1. 9 million scoda which sells Mass Market cars mostly in Europe sold 900,000 seat sold 500,000 cars they own a majority stake in the trayon group which sold about 300,000 semi- trucks in 2023 they also own a majority steak in Porsche which sold about 300,000 cars finally they own a few Ultra Luxury Brands including Lamborghini Bentley and Bugatti which collectively sold about 20,000 cars last year adding all of these together the Volkswagen group delivered 9.
24 million cars to customers worldwide in 2023 Volkswagen is an extremely large and complex organization to understand Volkswagen's current situation we must first understand what made them successful in the first place with vw's large size they've been able to achieve massive economies of scale their Factory in Wolfsburg Germany is the largest automobile assembly plant in the world occupying 6. 5 million square m it is three times a size of the country of Monaco such a large Factory needs a large Workforce it employs 62,000 workers which is roughly double the population of Monaco to maximize efficiency and economies of scale the Volkswagen Group shares parts and reuses Designs across many of its Brands if you look at some of the cars made by different brands within the Volkswagen group some of them look remarkably similar take the examples of the seat ateka and the scota karac they're almost identical the VW Tuareg and the Audi Q5 share many parts and also look very similar this standardization provides a few advantages because the parts are shared across many models Volkswagen can place gargantuan orders to their suppliers this gives them negotiating leverage and bulk discounts secondly because the cars are so similar It's relatively easy for them to shift production between different models this has historically allowed them to operate their factories at very high rates of utilization the Volkswagen group has factories around the world they often assemble the cars in the same countries where they are sold this avoids tariffs and minimizes transportation costs 51% of their production capacity is in Europe most of which is in Germany about a third of their capacity is in Asia mostly in China finally they have a few factories in North America South America and South Africa up until the late 2010s Volkswagen strategy worked brilliantly in 2017 they delivered 10. 7 4 million vehicles to customers around the world this allowed them to overtake Toyota and become the largest automobile company in the world however their time at the top would not last long also in 2017 Tesla released the model 3 strong demand for the model 3 proved that consumers were ready and fully electric vehicles would be the future of the automotive industry Volkswagen released its first production EV in 2013 the eolf at the time Battery Technology was far more primitive than it is today and the eolf only had 883 m of range its sales were minuscule in 2018 Volkswagen named Herbert DS to be its new CEO DS was a big believer in electric vehicles and decided to bet the company's future on electrification in 2019 the company announced it would invest 60 billion over the next 5 years to start building electric vehicles by 2029 the group PL to have 75 models of electric vehicles and cumulatively sell 20 million units this was considered to be the most aggressive electrification plan of any Legacy autom maker indeed over the next few years the company spent billions of Euros upgrading some of their existing factories to build electric vehicles in 20121 they began deliveries of their ID3 electric catch pack as well as the id4 electric SUV Audi and Porsche also released a number of fully electric models it looked like DS's plan to turn the company into an EV Powerhouse was starting to bear fruit but there were problems Brewing beneath the surface Herbert DS was a big admirer of Tesla not only because of their fully electric car s but also because of their software and ability to do over theair updates over theair updates can often solve problems that would otherwise require a costly and timec consuming trip to a service center in addition to the transition to EVS Volkswagen simultaneously embarked on an ambitious plan to develop new incar software in 2019 they founded a new subsidiary called car I am digital or carad for short the goal of carad was to make an infotainment system in the car that can connect to the internet and receive over theair updates building this kind of software is surprisingly difficult the infotainment system needs to communicate with all the various electronic systems in the car such as the air conditioning door locks seat warmers speakers lights Etc these various electronic systems are purchased from dozens of different suppliers getting them to all talk to each other can be a challenge despite investing billions of euros into car I ad Volkswagen software is widely considered to be extremely bad one of the most prominent critics of Volkswagen software is a YouTuber who goes by the name of e for electric he bought an id4 in 2021 almost as soon as it launched in October of 2022 he published a video entitled VW abandons id4 drivers as software issues grow he explained numerous grievances that he had with the car software the infotainment system takes a long time to connect to your phone sometimes the audio randomly dies sometimes the screen randomly goes blank while he's driving the backup camera will randomly stop working the tire pressure monitor is faulty the persistent software issues made the car almost unusable to add insult to injury Volkswagen previously sponsored his channel paying him tens of thousands of dollars to promote the id4 but eventually the issues with the car got so bad that he could no longer hold his silence while Volkswagen has almost 100 years of experience in designing and Manufacturing automobiles they have very little experience in developing software in the summer of 2022 Herbert DS was fired as CEO the board of directors lost confidence in him mostly due to the epic failure of the carad software subsidiary he was replaced by Oliver Bloom who previously served as a CEO of Porsche Bloom decided that Volkswagen didn't have to develop its software capabilities on its own in 2023 the company invested $700 million into the Chinese EV startup xun in 2024 they signed a deal to invest up to5 billion in the American EV startup rivan as part of these deals Volkswagen gained access to much of xun and rivian software and related intellectual property both xong and rivan are considered to have far better software than Volkswagen if we look at the Volkswagen group's worldwide vehicle deliveries it peaked in 2019 at almost 11 million in 2020 their number of deliveries decreased to 9.
3 million this decline can largely be attributed to the pandemic even after the pandemic ended vw's deliveries barely recovered in 2023 they delivered 9. 24 million Vehicles this is still 16% below 2019 levels in 2023 the Volkswagen group delivered 1. 7 million cars than it delivered in 2019 it's interesting to look at the breakdown by region there was a decrease of 300,000 in Central and Eastern Europe Russia used to be a major market for Volkswagen following the invasion of Ukraine public pressure and government policies made it impossible for VW to continue operating in Russia this was beyond Volkswagen's control and largely explains a decrease in Central and Eastern Europe what's much more concerning is a decline of about 500,000 deliveries in Western Europe and a decline of 1 million deliveries in China let's start off with China with roughly 30 million new cars sold each year China is the largest automobile Market in the world by far historically homegrown Chinese car brands suffered from notoriously poor quality up until 5 or 10 years ago Chinese car companies didn't have the expertise to build highquality cars with good reliability this created a massive opportunity for foreign automobile companies Volkswagen has been operating in China since 1985 through a joint venture with the state-owned auto giant saic most most of the vehicles VW sells in China are manufactured in China via the joint venture China has historically been one of vw's most important markets in 2019 they sold 4.
2 million cars in the country or almost 40% of their Global deliveries the competitive landscape in China has changed drastically over the past few years dozens of EV startups have popped up making high performance attractive looking cars think of the likes of byd Neo xun Lee Auto and many others Chinese consumers especially value high-tech features in their cars knowing this the Chinese EV startups invested heavily in software assisted driving and other miscellaneous Hightech features in most cases the software in New Chinese EVS is far superior to Volkswagen a combination of innovation and government subsidies has allowed Chinese EV startups to sell their cars at very cheap prices for example xun recently released a new electric sedan called The Mona mo3 which starts at the equivalent of $177,000 thanks to the massive selection of affordable EVS as well as the government incentives for buyers the Chinese automobile Market has electrified at extraordinary speed as of May of 20124 approximately 40% of new vehicle sales in China are fully electric the growth of domestic EV startups has come at the expense of Western Auto Giants including Volkswagen since 2019 vw's deliveries in China have fallen by 24% in addition to their sales collapsing in China Volkswagen is also seeing significant declines on its home turf in Western Europe in 2023 they delivered 3. 3 million cars in Western Europe a 133% decline compared to the 3. 8 million cars they delivered in 2019 this is not just a problem for Volkswagen in recent years new vehicle sales in Europe have been sluggish in general in 2023 there are 10.
