The 12 Group Initiatives of the NEW AUTO Strategy

Sustainability will continue to be a recurring theme in the business world and will gain further pertinence, driven by the increasingly noticeable consequences of climate change, a greater consciousness of sustainable lifestyles on the part of the customer and, not least, underlying factors such as the Paris Climate Agreement. As we transition from automotive manufacturer to mobility group, we are resetting our priorities with NEW AUTO and positioning ourselves for the future. We are keeping our aim of being a world-leading provider of sustainable mobility firmly in our sights and making the Group more focused, efficient, innovative, customer-oriented and sustainable, as well as systematically gearing it toward profitable growth.

To this end, we have established 12 Group initiatives across the brand groups. We will use these to develop the competences needed to implement the strategy. The focus is on the main multidisciplinary areas addressed by our technology platforms – mechatronics, software, battery & charging, and mobility solutions – on which the five tech initiatives described below are based. A further seven base initiatives form the foundation for the Volkswagen Group’s strategic realignment.

THE 12 GROUP INITIATIVES OF THE NEW AUTO STRATEGY

These are ESG, Decarbonization & Integrity, Business Model 2.0, North America (NAR) Region, China Region, Group Steering Model, People & Transformation and Financing the Transformation.

To make the progress in the relevant Group initiatives of our strategy as transparent as possible for management and employees, the Group Board of Management decided to structure and regularly measure the strategic goals and milestones using the OKR (Objectives and Key Results) method. Accordingly, achievable strategic objectives and envisaged key results are defined for each Group initiative. These are to be realized largely through time-limited projects and work packages, each of which is measured by specific key performance indicators. The degree of achievement is discussed three times a year with the Board of Management. As such, the relevance of the initiatives, and their objectives, milestones, projects and work packages, are regularly reviewed at Group level. Their focus is continuously monitored and adjusted as necessary or integrated into standard operations.

The current Group initiatives covered by the strategy are described below. We report on the main strategic objectives and interim results achieved in the reporting period in the chapters “Internal Management System and Key Performance Indicators”, “Structure and Business Activities” and “Sustainable Value Enhancement”.

MECHATRONICS – BACKBONE AND SCALABLE SYSTEMS PLATFORM

A future-oriented mechatronics platform will form the backbone for innovations, technology and lasting competitiveness at Volkswagen. With the Scalable Systems Platform (SSP), we are creating the next generation of an all-electric, fully digital and highly scalable mechatronics platform based on a standardized software architecture. With this standardized platform, which can be scaled from the smallest vehicles all the way up to the premium segment, the Volkswagen Group aims to rapidly and efficiently provide its customers with innovative functions and technologies in their vehicles, across all brands. By reducing complexity and the number of versions, the SSP will offer maximum synergies and make fast, regular technology updates possible, while lowering investment costs and ensuring the necessary differentiation between the products of the individual brands in the Group’s portfolio.

SOFTWARE – CARIAD: ONE E³ PLATFORM AND AUTONOMOUS DRIVING (AD) STACK

The purpose of the Group’s own software and technology company CARIAD is to create the technical basis for data-based business models, new mobility services and automated driving (Level 4), and to leverage cross-brand synergies. Our aim is to increase the proportion of software in the vehicle that is developed in house.

CARIAD is already working with the Porsche and Audi brands to introduce the new E³ 1.2 platform, which optimizes the harmonization of the hardware with the vehicle software from CARIAD. This facilitates the deployment of over-the-air updates and is a key lever for introducing new services even after vehicle production has begun.

In the long term, the standardized E³ software architecture that is already being developed, together with the VW.OS software platform and the Volkswagen Automotive Cloud, will form the basis of a complete digital ecosystem, offering customers a wide range of software-based services throughout the product lifecycle. The aim is for every function that is needed or requested and every service to be customized for the users in the various markets and to be available for download at any time. This will also open up new sources of revenue for us.

Applications at various levels of automated driving (up to Level 4) will be gradually introduced to the new vehicle models in the Group brands.

BATTERY & CHARGING – CELL AND BATTERY STRATEGY

The battery is a key component in an electric vehicle, and an important cost factor. The appeal and market success of e-mobility is determined not only by the price, but also by the vehicle´s range and the charging speed. We must become a profit-generating expert across the entire battery life cycle to achieve our objective of transforming into a world-leading provider of sustainable mobility. To this end, the Cell and Battery Strategy tech initiative pools expertise across the Group and is driving the transformation process in cooperation with our strategic partners. The aspects covered include battery management, cell production and recycling. Our aim is to develop battery cell technology into a core competence in the Group, and we are also working with partners to achieve this. At the heart of this strategy is the new unified cell, which can contain different chemistries and will be used in up to 80% of Group models by 2030. The excellent economies of scale this generates will reduce costs by up to 50% and put us in a leading cost position. To cover the high demand for battery cells, Volkswagen plans to build six gigafactories in Europe alone, with a production capacity totaling 240 GWh.

BATTERY & CHARGING – CHARGING AND ENERGY SERVICES

Charging, energy and a sustainable energy supply infrastructure for all-electric vehicles are key prerequisites for accelerating the transition to the battery-electric mobility of the future. It is therefore our intention also to become a comprehensive charging and energy services provider in the future and we are investing heavily in building an open fast-charging network worldwide. By 2025, we and our partners plan to create around 45,000 high-power charging points in Europe, China and the USA. The product portfolio also includes the full range of charging solutions for private customers and companies. In addition to our own wallbox and flexible fast-charging station, the focus is particularly on contract-based charging services and smart green electricity tariffs. Charging processes will then systematically use renewable energy and reduce pressure on power grids. In a next step, Volkswagen intends to develop the electric vehicle as a mobile power bank, thus helping electric vehicles to act as storage units and thus become an active part of the energy system in the future. In this way, Volkswagen wishes to enable its customers to participate in one of the leading smart-charging and energy ecosystems for decarbonized mobility.

MOBILITY SOLUTIONS

In keeping with its mission statement, “Mobility for generations to come”, the Volkswagen Group is developing mobility solutions for the future, taking into account global trends and changes in customer needs. The Group plans to bring together all of its brands’ mobility services on one mobility platform over the coming years. Autonomous driving combined with new mobility solutions is expected to mark Volkswagen’s transformation into a leading provider of sustainable mobility. A vehicle fleet covering all of the many services, from vehicle rental to car subscription and ride pooling, will ensure high availability, usage and profitability. With these solutions, we plan to gain market shares and generate long-term competitive and attractive margins.

ESG, DECARBONIZATION AND INTEGRITY

ESG (Environmental, Social, and Governance) refers to the basic principles of doing business sustainably. The Group’s stakeholders (e.g. investors, employees, customers and non-profit organizations) have high expectations of the Company’s ESG performance, including in areas such as decarbonization and integrity, and also of its conduct as an employer and as part of society. The Group’s ESG performance therefore directly affects its market capitalization, cost of capital and investing activities. We aim for a top position relative to our competitors in sustainability ratings. We are committed to the Paris Climate Agreement and align our own activities with the 1.5-degree target. We aim to achieve net carbon neutrality by 2050. By 2030, we have also set ourselves the target of reducing CO₂ emissions from passenger cars and light commercial vehicles over the total life cycle by 30% compared with 2018. As part of this effort, we are looking for ways to increase the proportion of recyclable materials in our vehicles. We also wish to become the benchmark for ethical corporate conduct. Volkswagen sees itself as an equal opportunities employer. The intention is therefore for at least a fifth of Company management positions to be held by women by 2025, and for at least a quarter to be held by international managers.

BUSINESS MODEL 2.0

The Business Model 2.0 base initiative is developing a Group-wide portfolio of services, the purpose of which is to create a seamless and innovative product experience to connect brands, customers, dealerships, our partners and whole markets. The aim is for the key technologies needed for this to be integrated into a majority of the platform-based vehicles by 2030. Using connected vehicles, the Group’s brands are to be able in future to remain in contact with their customers throughout the entire vehicle life cycle and thus to offer them services and functions for their individual needs. This will allow us to build a competitive, data-driven service portfolio that also maintains our leading position in the automotive market in future.

NORTH AMERICA (NAR) REGION

For the Volkswagen Group, North America, and particularly the USA, is the region with the greatest growth potential, especially where e-mobility is concerned. We intend North America to become our third core region alongside Europe and China by 2030. Our aim there is to achieve a very strong increase in total market share for the Volkswagen Group by then.

We aspire to further expand our presence in the region with strong brands and prepare ourselves for the future with market-specific products.

We also wish to participate to a disproportionately high extent in the growth of the increasingly electrified markets in the USA and Canada. We will therefore substantially expand our range of all-electric models across the Group and develop models specifically for these markets. The proportion of battery-electric vehicles in our sales in the USA and Canada is to increase to 55% by 2030.

In addition, we wish to maximize the potential for synergies in the region and build significantly more expertise, industrial capacity and vertical value chains in the North America region.

CHINA REGION

China is of major strategic significance to the Volkswagen Group as its largest single market, and we expect it to continue growing in the future. All key measures are therefore brought together in this strategic base initiative in order to continue Volkswagen’s success story in China. The activities include a comprehensive program of measures with a focus on cost, long-term technological competitiveness, localized development activities that are tailored to the market, and the further consolidation of our existing partnerships.

Our aim is to achieve high market shares in the electric vehicle segment and establish ourselves as a leading provider. For vehicles with combustion engines, our aim is to maintain our share of the market, as these will also make a contribution to profit in future with high unit sales. We are therefore continuing to accelerate our Group-wide localization strategy in China so as to offer our Chinese customers tailor-made products, and we are using not only global platform technologies (hardware and software), but are increasingly employing platform technologies that have been developed locally. In this way, we wish to stand our ground against the constantly growing competition in the new intelligent connected vehicle (ICV) segment.

GROUP STEERING MODEL

To achieve the objectives of the Group strategy and thereby safeguard the Volkswagen Group’s long-term success, we are extensively optimizing our Group steering model. It is essential that we establish a consistently high level of mechanisms that facilitate swift decision-making, the development and use of platform technologies and the exploitation of synergies, and that we constantly enhance these. The updated Group Steering Model places the brand groups and technology platforms center stage in order to scale up the latter while maximizing synergies across the entire Group product portfolio. A new strategy and product planning process that has been optimized for efficiency is being developed on the basis of this approach. The package of measures for this initiative hones the definition of roles and responsibilities in the Group and improves transparency in this respect both inside and outside the Company. It also promotes the entrepreneurship of the independent units and brands and at the same time strengthens collaboration across the Group.

PEOPLE & TRANSFORMATION

As it becomes a global tech company, the Volkswagen Group will see the biggest transformation of its workforce in its corporate history. To ensure the Group remains competitive in future, we need to attract top talent and support existing employees by providing extensive training where required. Our aim is to retain staff for the long term. It is therefore fundamental that we address the changing needs of our employees and offer them an outstanding employee experience. To achieve our Group’s ambitious objectives, we must also create and promote an environment for productive teams, resulting in a strong, sustainable and socially responsible corporate culture that fosters a sense of belonging and loyalty to the Company. A further focus is on aligning the Company with society and the environment.

FINANCING THE TRANSFORMATION

The transformation being driven by digitalization and electrification will require extensive investment. To meet this need for financing, the Financing the Transformation base initiative aims to leverage even more Group-wide synergies across all functional areas along the value chain, focusing on costs and efficiency. The Group has therefore set itself the objective of lasting improvements to its fixed-cost structure, plant productivity, procurement costs, distribution expenses and working capital management.