The German car giant has announced that its core brand will develop its final generation of vehicles using combustion engine technology in 2026.
Alex Gibney, the Oscar-winning documentary filmmaker, best known for his films like Going Clear: Scientology and the Prison of Belief, Enron: The Smartest Guys in the Room, and Taxi to the Dark Side, recently made a documentary series for Netflix called 'Dirty Money.'
The first episode dealt with what has come to be called 'Dieselgate' or 'Diesel Dupe'. About three years ago, in September 2015, the Environmental Protection Agency (EPA) found that many Volkswagen cars being sold in America had a "defeat device" - or software - in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant, the largest car manufacturer in the world, then admitted to cheating emissions tests in the US - rigging software to make its vehicles appear to comply with clean air regulations, when in fact they did not. The company was forced to pay more than 27 billion euros in fines for hiding excessive pollution.
Three years hence, that very carmaker, with that very dubious history, has announced that its core brand will develop its final generation of vehicles using combustion engine technology in 2026. Does that mean Volkswagen will be going fully electric? Well, not really. There is some fine print that we need to discuss, and that is precisely what we will do on our Pick of the Day. This volte face, if you will, by Volkswagen, is our topic of discussion today. My name is Rakesh, and you are listening to Moneycontrol.
Shifting gears to electric
The initial lead in the electric car segment that Japanese and American carmakers have achieved looks set to be challenged by German auto giant Volkswagen. The company has committed that by 2026 it will have launched its last generation of cars that will use petrol and/or diesel engines. Michael Jost, head of brand strategy at the company, speaking to the Handelsblatt automotive summit conference at Volkswagen’s headquarters in Wolfsburg, said: “In the year 2026 will be the last product start on a combustion engine platform.”
A spokesman confirmed Jost's remarks meant that VW, Europe and China's best selling passenger car brand, will focus on electric cars instead. Reuters reported that VW will continue to adapt its petrol and diesel engined cars to meet environmental standards during the lifetime of those vehicles, but the German carmaker is now committed to radical steps to stop global warming, Jost said.
As a way to meet the goals of the Paris climate accord, Volkswagen has changed its car development benchmarks to include the target of radically cutting levels of carbon dioxide pollution in production as well, Jost said.
Simply put, that doesn’t mean that VW will stop producing diesel and petrol engines in eight years’ time. Nor does it mean a stop-sale for petrol and diesel models after that date. As the Irish Times went on to note, "Given that the average new-car platform has a lifetime of roughly a decade, VWs that burn hydrocarbons will be on sale long into the 2030s and likely even into the 2040s. What it does mean is that new Volkswagen models after that point will be developed solely around electric power."
Michael Jost said that the German carmaker is now committed to “radical steps to stop global warming.” Presumably those radical steps include a hefty mea culpa for triggering the still-rolling diesel emissions scandal, which has thus far cost VW €27 billion, and counting, in fines.
This turnaround is a bit like imagining Lord Voldemort becoming Harry Potter's caretaker. And yet, here we are. Fortune Magazine said, "For nearly 10 years, Volkswagen and its subsidiaries produced diesel cars with exhaust control equipment rigged to shut off once they were tested by regulators. While car owners may have believed they were driving eco-friendly vehicles, they were actually emitting illegal levels of toxic chemicals into the air."
In this particular case, Volkswagen faced fines for the emissions of V6 and V8 diesel engines manufactured by Audi and installed in Audi, Volkswagen, and Porsche vehicles. The case also addressed EA 189 and EA 288 engines manufactured by Volkswagen and installed in Audi vehicles.
EPA had said that the engines had computer software that could sense test scenarios by monitoring speed, engine operation, air pressure and even the position of the steering wheel.
BBC wrote, "When the cars were operating under controlled laboratory conditions - which typically involve putting them on a stationary test rig - the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance. Once on the road, the engines switched out of this test mode."
The result? The engines emitted nitrogen oxide pollutants up to 40 times above what is allowed in the US.
One of the worst cases of breach of customer faith, the rank and file of the company had nowhere to turn their heads except hang south in shame. "We've totally screwed up," said VW America boss Michael Horn, while the group's chief executive at the time, Martin Winterkorn, said his company had "broken the trust of our customers and the public". Mr Winterkorn resigned as a direct result of the scandal and was replaced by Matthias Mueller, the former boss of Porsche.
What started in the US had spread to a growing number of countries. The UK, Italy, France, South Korea, Canada and, of course, Germany, opened investigations. Throughout the world, politicians, regulators and environmental groups questioned the legitimacy of VW's emissions testing.
27 billion euros (and counting) is what the bill reads of the breach of customer trust and the brazen disregard for the environment. Volkswagen's next act is that of the reformed moral delinquent - or electric cars, as it is called in the world of automobiles.
Volkswagen is the world’s largest carmaker, selling some 10.7 million vehicles last year. Dieselgate, in its Audi subsidiary in 2015, and shifting consumer habits have caused it to dramatically shift focus away from traditional vehicles. The company plans to make 50 million electric cars, but has not provided a timeline for that goal yet. Production on electric VWs will begin by the end of this year. By 2022, it expects to have 22 models available.
It’s hardly alone. Other German carmakers have also entered the electric car market on the luxury side. In September, Audi started production on its e-tron and Mercedes-Benz unveiled its EQC model. On this very topic, we had dug deeper a little earlier here.
As Autocar reiterated recently, "Volkswagen has pursued a radical shift to electrification in the last couple of years, as it attempts to enter a new era post-Dieselgate. It's also under the same pressure as the broader car industry to hit tough emissions targets to combat climate change."
Last year, the Volkswagen Group, which also includes Audi, Porsche, Seat and Skoda, said it would invest £30 billion in electrification, autonomy and technology by 2022. Volkswagen’s ID range of electric vehicles includes the hatchback, Crozz SUV and Buzz Cargo van. All will be built on the Group's new MEB EV platform. The first production ID car, the hatchback, will go on sale in early 2020.
Bloomberg reported that Volkswagen has started to introduce its first wave of electric cars, including next year’s Porsche Taycan. The rollout across its stable of 12 automotive brands is forecast to comprise about 15 million vehicles, as the company earmarks $50 billion over the next five years to spend on its transformation to self-driving, electric cars. Production of the VW brand’s I.D. Neo hatchback will start in 12 months in Germany, followed by other models from the I.D. line assembled at two sites in China as of 2020. VW plans to launch fully or partly electric versions across its lineup of more than 300 cars, vans, trucks and motorbikes by 2030.
Cost of reform
44 billion euros - that's how much. The company has pledged to spend 44 billion euros to develop an entire range of all-electric cars. Irish Times reports, " Factories are already beginning to be re-fitted to allow for the construction of these cars, and VW is already at work on its own ‘Gigafactory’ to build its own batteries. Simpler processes, such as moving production of the VW Passat from Germany to the Czech Republic (where it can be built alongside its kissing cousin, the Skoda Superb) frees up space in other plants for electric car work. Less simple processes include negotiating with Germany’s tough-minded unions over just how many workers will be needed for these new cars, although VW has committed to no layoffs at its big Emden and Hanover production plants."
“Producing cars in a CO2-neutral manner is only half the battle. Cars must be used in a CO2-neutral manner as well” said Herbert Diess, VW’s chief executive, also speaking at the same conference. The industry cannot “save the world on its own,” Diess noted.
But the industry did certainly contribute in having to save the world, and Diess notes that the industry is willing to do more as part of its mea culpa.
Diess went on to note that Germany, for example, has more of a CO2 problem than a nitrogen oxide problem. Nitrogen oxide - NOx - was what VW was pulled up for. Clearly, Diess was smarting at the vilification of diesel cars. Noting that NOx was a local phenomenon and CO2 a global phenomenon, he emphasised that NOx levels, only breached sporadically, are more easily controlled than CO2 emissions.
How does it affect India?
Swaraj Baggonkar, writing for Moneycontrol, notes that "[the] move comes less than a year after the troubled group announced investments totalling 1 billion euro in India as part of its India 2.0 project aimed at reviving its beleaguered operations here." Volkswagen-owned Czech brand Škoda has taken the lead in developing new models for India and export markets.
The company's senior management, at a press event in India last week, did not highlight the group's plans for green mobility, including the launch of electric and hybrid vehicles in India. Volkswagen's competitors in India, on the other hand, are planning a series of launches in the next two years.
The group is focused on rolling out petrol and diesel-powered cars and SUVs that will be partially developed at an engineering center in Pune. For lack of charging infrastructure and an allied ecosystem to sustain it, some manufacturers have shown little interest in launching electric vehicles in India.
The Škoda-Volkswagen combine is presently working on two sports utility vehicles (one for each brand) using the MQB A0 IN platform that will be ready for launch in 2020, just after the pan-India rollout of Bharat Stage VI emission norms.
Volkswagen was forced to reroute its focus on India a couple of years ago after a failed attempt at forging ties with Tata Motors. The tie-up was aimed at producing and selling an affordable range of cars and SUVs, perhaps using a common platform that would help bring down the cost of manufacturing.
The MQB platform was proving to be too expensive for India for Volkswagen at the time. To be sure, the group has decided against venturing into the low-cost segment in India and instead keeping both Škoda and Volkswagen as premium brands.
So the Polo will remain Volkswagen's entry-level car for the Indian market, but Škoda has not committed to a hatchback as yet.
The Indian market is dominated by cars measuring under 4 meters in length, controlled tightly by Maruti Suzuki, followed by Hyundai. More than 80 percent of yearly volumes in India come from the less-than-4-meter segment.
Meanwhile, reports have emerged that Volkswagen was building an alliance with Ford Motor Co and might use the US automaker’s plants to build cars. VW CEO Herbert Diess said the company was also “considering building a second car plant” in the United States, adding, “We are in quite advanced negotiations and dialogue with Ford Corporation to really build up a global automotive alliance, which also would strengthen the American automotive industry.”Doing the march alone seems now to be a thing of the past in the auto industry. Tariffs, new technology and tougher emissions rules have fragmented markets that were once global. Any long term success in the auto industry henceforth depends on forging new alliances, and developing machines that leave a green trail.