Volkswagen’s Electric Rebound
VW makes its own electric pivot in the wake of “Dieselgate”
In mid-2015 Volkswagen AG, the world’s largest automaker, was an image of environmental credibility and innovation in an industry more commonly associated with complacency and pollution. Volkswagen (VW) offered a range of award winning diesel vehicles under the VW, Porsche, and Audi brands in the U.S., and other a few other nameplates (like Skoda and Seat) in Europe. VW-made diesel vehicles were powerful and clean, and many would drive nearly 50 miles on a gallon of fuel. Engineers at rival automakers wondered aloud how VW balanced performance, price, and environmental impact.
In September 2015 the United States Environmental Protection Agency (EPA) answered their question: VW cheated, and secretly sold diesel vehicles with software that obscured the fact that they emitted Nitrogen Oxides (NOx) and other climate change-related gases at levels over 40 times what the EPA permitted [1]. Depending on who you ask VW’s unprecedented deception was driven by the unexpected failure of proprietary emissions technology or a draconian, anti-fear corporate culture that would make a fantastic LEAD case.
Either way, over 11 million VW vehicles sold between 2009 and 2016 were affected, including 8 million in Europe and nearly 3 million in Germany alone [1]. Senior leaders expectedly resigned across the VW AG empire, including the VW AG CEO Martin Winkerhorn. The EPA took VW to a U.S. federal court, which returned a $14.7 billion settlement in late October 2016 [2]. And perhaps most painful to VW, many people stopped buying VWs. Sales of VWs fell nearly nine percent in a single month in January 2016 [3] and have yet to fully recover.
Indeed, sales of diesel vehicles (VW and otherwise) across Europe appear impacted by VW’s “Dieselgate” scandal, with diesel sales falling by up to 12% in some countries [4]. Many European consumers now question the ethics of diesel ownership in an era of climate change awareness. For their part, European governments question the wisdom of fuel tax structures that have long incentivized the purchase of what we now recognize to be dirty (albeit economical) diesel vehicles.
Indeed, in the thirteen months since Dieselgate broke leaders in VW’s homeland of Germany have leaned ahead of their regional counterparts in pushing policies intended to change how the vehicles on their roads affect climate change. In April of 2016 the government of German Chancellor Angela Merkel struck a deal to provide $1.4 billion worth of incentives to electric car buyers [5]. This works out to about 4000 euros per electric car buyer, and is a significant (if still symbolic) step in a country where only 30,000 of the 3 million vehicles bought each year are electric. Even more dramatically, in October 2016 the German Bundesrat (a sort of legislative body akin to the U.S. Senate) resolved to ban the sale of internal combustion (i.e. gasoline and diesel) engines in Germany by 2030 [4]. A political stunt? Probably, but also a likely leading indicator of political sentiment.
So where does this leave VW, with its gutted creditability and increasingly unmarketable diesel product line? Working on electric cars, actually. In the year since the scandal broke – as European governments and consumers reacted to VW’s cheating by turning away from diesel vehicles and towards electric vehicles – VW made its own pivot towards electricity. In mid-October 2016 at the Paris Auto Show VW unveiled an ambitious plan to launch 30 new electric vehicle models (ranging from a compact SUV to a luxury sedan) and sell one million electric vehicles per year by 2025 [6].
Analysts decried VWs plan as a reactionary attempt to restore its tarnished public image (because it probably was). However, if VW can execute its new electric vehicle plan then it may adapt more effectively than its competitors to the same aggressive, climate change-focused legislation that its own filthy diesels prompted.
Even if VW is unable to meet its electric vehicle model launch and sales goals the company could leverage tremendous resources and capacity (five million vehicles sold globally per year) to expand the electric vehicle market in Europe and elsewhere. Perhaps the goals set at the Paris Auto Show should be considered less of a concrete plan and more of a signal that a legendarily dirty automaker intends to make more money as one of the industry’s cleanest in the years ahead. [726 words]
Sources (linked above):
- http://www.consumerreports.org/cro/cars/guide-to-the-volkswagen-dieselgate-emissions-recall-
- http://www.theverge.com/2016/10/25/13413822/volkswagen-dieselgate-14-7-billion-settlement-approved
- http://www.wsj.com/articles/volkswagen-car-sales-in-germany-fall-8-8-in-january-1454440256
- http://www.forbes.com/sites/bertelschmitt/2016/10/08/germanys-bundesrat-resolves-end-of-internal-combustion-engine/#258c1b6f31d9
- http://www.bloomberg.com/news/articles/2016-04-27/germany-planning-1-4-billion-in-incentives-for-electric-cars
- http://www.forbes.com/sites/neilwinton/2016/10/13/are-volkswagens-electric-car-plans-overambitious-or-on-the-money/#69474d2b71e7
Should VW incentivize buyers even further by offering deep discounts in addition to the EU incentives? Because of the damage that they caused to their image and their environment I feel that they should do more for the auto industry and their consumers than paying the required fines. Making electric cars a serious focus and making them more accessible to the public would be a great way for them to right their wrongs.
Maria, thanks for weighing in! I understand the German government is providing the incentives using money sourced in part from VW, Mercedes, and BMW (that is, the broader German auto industry). The auto companies’ contributions are likely weighted based on market share.
I concur 100% that supporting lasting market adoption of electric vehicles would be a more meaningful way to address VW’s activities than a simple fine. Perhaps VW could pay its restitution in the form of public electric vehicle recharging infrastructure? I’m thinking of things like recharging stations at gas stations, in public garages, or elsewhere.
I wonder a little bit about driverless cars in the context of this article.
I think it’s possible that however well developed VW’s electric car is, the introduction of driverless cars may soon render all this research and hard work pointless, not just for VW but for other auto companies. Google’s self-driving cars are well into a pilot stage in many different parts of the country, and are planned to be in the market as soon as 2018. We’ve seen in the past that where Google goes, others tend to follow; so will having a really good electric car- but one that still requires a driver – really be a competitive advantage for long? And will VW meet its goals for 2025?
Great post Blaine. I really do think this would make a fantastic LEAD case as after reading all of these other fantastic articles about making changes and promises to sustainability, how many other companies are susceptible to a sudden technology failure or worse yet, “draconian” culture that would undermine these initiatives. I am eagerly watching VW in how they can regain consumer trust, as even with the more outright “green” solution of an electric vehicle, how can we trust that their numbers are correct and that they are executing what they are marketing? I suspect there will need to be increased transparency and consumer engagement to get this trust, and if they succeed on this, it will be fantastic for the industry as it may force everybody to be as transparent and thus hold the auto industry to a higher standard.
Regardless of its motivations for turning to electric vehicles, VW seems to be making impressive strides in this market. While I am a supporter of the transition to electric vehicles, I think its also important to remember that most of the world’s electricity that is used to power those vehicles is still coming from “dirty” sources like coal, gas, etc. For example, in the Netherlands, to meet increasing demand for electricity the country responded by building three new coal-fired plants.1 Many electric vehicles will then potentially be run on fossil-fuels, despite the fact that the vehicle itself may not be releasing emissions. VW and the other electric car manufacturers may not necessarily be producing “clean” vehicles when the entire life cycle of the car is considered.
[1] https://www.washingtonpost.com/world/electric-cars-and-the-coal-that-runs-them/2015/11/23/74869240-734b-11e5-ba14-318f8e87a2fc_story.html