Even as greenhouse gas (GHG) emissions in key sectors across the EU have been falling, emissions from the transport sector continue to increase. In 2021, road transport accounted for nearly three quarters of all EU domestic and international transport greenhouse gas (GHG) emissions. With the EU committed to more than halving its GHG emissions by 2030, it has become imperative for automakers to balance revenues with regulatory compliance, and economics with environmental considerations.
Vehicle manufacturers like the Volkswagen Group have recently bumped up their electric vehicle (EV) sales targets both in Europe and North America. The ‘Accelerate’ strategy of March 2021 aimed at fast-tracking the automaker’s vehicle electrification agenda. A recent announcement now underlines greater aggression on this front. The company has now set itself a target of 80% EV sales in Europe (up from the earlier 70%) and 55% in North America (up from the previous 50%) by 2030.
The electrification strategy will be spearheaded by battery electric vehicles (BEVs), with the Volkswagen brand intending to produce only EVs in Europe by 2033. More immediately, it plans to launch ten new BEV models by 2026, including variants of existing models like the ID.3, the ID.3 GTX, and the ID.2
The company’s Emden plant is likely to follow the Zwickau and Dresden factories to become dedicated to EV production. Volkswagen is also slated to invest nearly ($482 million) by early 2025 in its Wolfsburg plant, with much of the investment set to be channeled toward manufacturing the electric compact ID.3, followed by a fully electric SUV model on the electric-only Modular Electric Drive Toolkit (MEB) platform.
This kind of “platform thinking” represents a shift away from the conventional single model/factory and will be critical to ensuring economies of scale, boosting productivity, and realizing the automaker’s objective of manufacturing a price-competitive entry-level EV for under €25,000 in the volume segment.
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Stringent car emissions standards and vehicle electrification will be crucial to helping the EU achieve its climate neutrality goals by 2050. As a first step to realizing its ‘Fit for 55′ package set out in July 2021, the European Commission has highlighted stricter CO2 standards which require average emissions of new cars to come down by 55% by 2030, and new vans by 50% by 2030. This marks a transitional step towards ensuring all new cars and vans registered in Europe are zero-emission by 2035.
Meanwhile, the European Green Deal lays out a framework to support Europe becoming the world’s first climate neutral continent by 2050 while attaining a “modern, resource-efficient and competitive economy”. Central to this vision is “efficient, safe and environmentally friendly” public and private transport.
In addition, the recent European Union Critical Raw Materials Act of March 2023 aims to create a secure and sustainable supply of critical raw materials for European industry. Against this backdrop where the EU is committed to ensuring competitive growth fueled by clean technologies, automakers like the Volkswagen Group are responding positively, while expanding their EV portfolios. In a virtuous cycle, their efforts at transitioning towards clean transport are being supported by government programs that are establishing strong supply chains and a reinforcing ecosystem.
Most European and North American OEMs have sought to achieve compliance with emissions regulations by accelerating portfolio electrification strategies. This approach is seen as a way to realize higher return on investment from a compliance perspective as well as, more long-term, from a revenue perspective.
While BEVs, mild hybrid EVs (mHEVs), full hybrid EVs (FHEVs), plug-in hybrid EVs (PHEVs) are all part of the mix, their adoption varies by automaker. For instance, BMW, Mercedes-Benz and Volvo are focused on PHEVs in the short term; Kia, Renault-Nissan, and Volkswagen on BEVs; and Asian OEMs on hybrids. Frost & Sullivan research indicates that while mHEVs and PHEVs will lead compliance towards 2025, following which BEVs will be replacing xEV types beyond 2025.
Securing a Sustainable Future
The Volkswagen Group already has about 20 BEV models in Europe across 6 platforms. Frost & Sullivan research underscores that by 2025, the company is likely to expand its in-house, dedicated BEV platforms to accommodate more than 50+ models in its portfolio. In order to pursue this objective, there are plans to operate about 6 battery giga factories in Europe by 2030.
It is currently the #1 BEV manufacturer in Europe with sales of about 360,000 battery-only light vehicles. By 2035, Frost & Sullivan expects more than 75% of passenger cars to be electrically driven, and the Volkswagen Group with its commitment of having 80% BEV sales by 2030 is expected to set a benchmark for other OEMs.
In addition, the Volkswagen Group’s successor to the MEB, the next generation, modular, all-electric, all-digital, highly scalable car platform –the Scalable Systems Platform – aims to support the company’s strategy of having a single BEV platform across all its brands in the future.
The Volkswagen Group was at the forefront in committing to the Paris Climate Agreement with its intention of becoming net-zero climate neutral by 2050. From its investments in fleet decarbonization and focus on rebranding as a sustainable, software-driven mobility group, the automaker looks set to a new template, while well and truly leaving behind the ‘dieselgate’ controversy.