Volkswagen is going to become a battery and software company?

According to the strategy just released, by 2030, the Volkswagen Group will become a four-wheel-drive company for cars, batteries, software, and travel services.

On the evening of July 13th, Beijing time, Volkswagen Group released its 2030 strategy in Germany-NEW AUTO, the car of the new era. Batteries, software, and travel services have clearly become Volkswagen's future business growth points, especially batteries and software, which have become the key areas of group investment since this year. According to the plan, by 2030, in addition to being a car manufacturer, Volkswagen will also be the world's leading power battery supplier and vehicle software service provider.

The reason why Volkswagen decided to transform was mainly based on the company's judgment on the future development trend of the auto market. At the 2030 strategy conference, Volkswagen demonstrated the group's assessment of the value of the future automotive market.

Volkswagen Group predicts that by 2025, the global automotive consumer market will exceed 3 trillion euros, and by 2030, it will exceed 5 trillion euros. By 2030, the market share of electric vehicles and internal combustion engine vehicles will be basically the same, and software revenue will create close to 30% of the market value.

The future growth of the automobile market will all come from electric vehicles and software. Therefore, in Volkswagen's 2030 strategy, batteries and software have become the focus.

01 Battery and charging become the key business of Volkswagen Group

Electric vehicles will play an increasingly important role in the future automotive market has become a consensus among car companies. However, most car companies have focused their efforts on vehicle design and product development, while Volkswagen has gone straight to the fundamentals. Among all automobile OEMs, the first focus of their efforts has been on the battery field.

On Battery Day in March this year, Volkswagen announced for the first time that it will build 6 battery factories in Europe before 2030, each with a capacity of 40GWh and a total capacity of 240GWh. At that time, comments were saying that Volkswagen cannot be said to be a car company in the future. After all, the production capacity of 240GWh is enough for Volkswagen to become the world's leading power battery manufacturer.

At this 2030 strategy conference, Thomas Schmal, a member of the board of directors of Volkswagen and the head of the group's technology research and development, introduced the latest developments in the battery business.

The No. 1 plant is located in Sweden, and the partner is Northvolt, a leading European power battery company. To ensure its controlling position in the factory, Volkswagen just recently added 500 million euros in investment. The second factory is located in Salzgitter, Germany, and Guoxuan Hi-Tech is responsible for construction and production. Volkswagen has recently completed the signing of a strategic cooperation agreement with Guoxuan Hi-Tech. The No. 3 plant has been determined to be located in Spain.

In addition to production capacity, Volkswagen once again emphasized the technical innovation of uniform specifications of batteries and battery life cycle. The uniform battery cells developed by Volkswagen can be compatible with a variety of battery materials, iron phosphate, ternary, and even future solid-state batteries can use uniform battery cells. According to public estimates, this technology can reduce battery costs by up to 50%.

In addition to reducing costs, another major effect of using uniform specifications of batteries is to facilitate secondary use and recycling. According to Volkswagen's calculations, 80% of the cost composition of power batteries is the material of the battery cells. Through high-efficiency battery recycling, this part of the cost can be effectively reduced. The recycling goal set by Volkswagen is that 95% of battery cell materials can be recycled and reused. Once battery recycling takes shape, the cost of obtaining raw materials through recycling can even be lower than purchasing new raw materials.

In addition to battery production, the charging network Volkswagen has also carried out a comprehensive layout. In the three largest new energy vehicle markets in China, Europe, and the United States, Volkswagen has completed the deployment of charging piles through local partners. In the Chinese market, through Volkswagen's cooperative company Kaimaisi, 17,000 quick-filling piles will be deployed by 2030. In the European market, 18,000 fast-charging piles will be deployed by 2030 through cooperation with local operators in many countries. In the US market, by 2025, through its partner Electrify America, 10,000 quick charging piles will be deployed.

Uniform battery specifications and huge battery production capacity help Volkswagen to gain a cost advantage. Complete charging networks in China, Europe, and the United States win service advantages. Before 2030, Volkswagen must establish a new moat in the era of electric vehicles through batteries and charging networks to ensure that they compete. Gained the advantage.

However, in the battery business, Volkswagen is also facing huge challenges in supply chain security. The manufacture of lithium battery positive and negative electrodes, electrolytes, and separators is highly dependent on China. According to Bloomberg data, China is the mainstream in the manufacture of various lithium battery components.

In the past year in China, due to the huge increase in demand for lithium batteries, the cost of raw materials has been rising rapidly. The price of lithium carbonate has risen from 50,000 yuan per ton at the beginning of the year to nearly 87,000 yuan in June. The price of lithium hydroxide at the end of June was 89,700 yuan per ton, a year-on-year increase of 64%.

The price increase is not the biggest risk factor. Due to the impact of the construction period, the expansion speed of battery raw material manufacturers cannot keep up with the expansion speed of battery manufacturers. In this round of expansion of lithium batteries, supply chain security is facing the entire industry. The huge risk factor.

02 The software business is ambitious and realistic

Software is another major part of Volkswagen's 2030 strategy. To do a good job in the software business, Volkswagen established a company called CARIAD. At the strategic conference, CARIAD CEO Dirk Silgenberg introduced that by 2025, 30% of all software used on popular products will be developed by CARIAD. In 2030, this proportion will increase to 60%, and core functions such as artificial intelligence, big data, and security systems must be 100% independently developed.

Of course, as the most lacking part of the public, the entire group knows that software must increase investment. Silverberg introduced that from now to 2023, Volkswagen will continue to invest 2-25 billion euros in CARIAD every year to accelerate the development of the software business. It is expected that it will start to generate profits through licensing and licensing in 2025.

In terms of software development progress, 2023 and 2025 will be two important node years. In 2023, Volkswagen's vehicle software will be upgraded to version 1.2, which will make significant progress over the existing 1.1 version. In 2025, the version will be upgraded to 2.0, and the development of Volkswagen's software architecture will be completed. All models adopt unified vehicle software and will have L4 autonomous driving capabilities.

In the 2030 plan, a clear scale expectation is put forward for the future mass software business. By 2030, it is expected that about 67 million vehicles will use Volkswagen's automotive software, including Volkswagen, Audi, Porsche and other Volkswagen Group brands, as well as other brand electric vehicles that will be produced on Volkswagen's model platform, such as Ford.

If you only look at the software business development plan proposed by the public, this is an ambitious plan, and it also gives a clear prospect, but in terms of software functions, the public has actually fallen behind. Take the 1.2 version that will be launched in 2023 as an example, the information given at the press conference shows that this version of the user interaction interface will be developed based on Android Automotive and will support the third-party application market for the first time, and consumers can install their favorite applications independently.

Seeing such a functional description, Chinese smart car consumers may not be able to believe that this is the next-generation car software that will only be put into use in 2023. These functions are now standard features in the domestic smart car market. In the development of vehicle software, although Volkswagen has considerations based on safety and vehicle control, it is an indisputable fact that the software functions and user experience are behind the leaders.

At present, the Volkswagen ID series models that use Volkswagen's software version 1.1 are selling well in Europe, but the sales in China are not good, which is related to the poor experience of using the intelligent system. Chinese consumers have been whipped up by various smart cockpits and smart cars with various functions, and they have taken the level of intelligence as an important reference standard for choosing a car. In Europe, firstly, consumers have limited awareness of smart cars. At the same time, relatively mature and conservative car consumption habits also make consumers do not have high requirements for the smart level of cars. This low requirement has also directly caused European car companies to start a step slower in the development of smart cars.

03 In addition to batteries and software, other costs must be reduced

Batteries and software are areas where Volkswagen’s 2030 strategy focuses on expanding investment. In addition to these two areas, Volkswagen's business goals in the 2030 strategy are only two words, reducing costs.

For the traditional internal combustion engine vehicle business line, Volkswagen expects that by 2030, due to declining market demand, stricter emission regulations and taxation disadvantages, the internal combustion engine vehicle market will shrink by more than 20%, but it will still account for about half of the automotive market. In an environment of a shrinking market, ensuring that internal combustion engine vehicles are still profitable has become a problem for all major car companies.

The solution proposed by Volkswagen is to further tap the potential of the existing MQB model platform. Since the MQB platform was put into use in 2014, dozens of popular models have been born on this platform in the past 7 years. From now until the production of internal combustion engine vehicles is discontinued, Volkswagen's internal combustion engine models will also be developed based on the MQB platform, further diluting the cost of platform development and reducing the cost of the entire vehicle.

In addition to using the platform, Volkswagen will also reduce its internal combustion engine vehicle models by 60%. Fewer models mean higher parts universal rate and lower procurement costs. In addition, it will further increase the capacity utilization rate of the manufacturing plant and further reduce costs. For the internal combustion engine vehicle business, all plans proposed by Volkswagen have only one goal, which is to reduce costs.

In the electric vehicle business, Volkswagen also reduces costs at the platform level. The core modules are extracted from the existing fuel vehicle platforms MQB, MSB, MLB, and pure electric vehicle platforms MEB and PPE, respectively, and integrated into the unified model platform SSP. By 2025, the new platform will be developed and put into use 2026.

As the integration is based on the existing platform, the R&D cost of the SSP platform is greatly reduced compared to the past. Volkswagen will invest 800 million euros to establish a research and development center in Wolfsburg to carry out platform research and development. In the past, the investment in the research and development of the vehicle model platform was astronomical in the tens of billions, or even tens of billions of euros.

04 The last piece of the puzzle of Volkswagen's 2030 strategy

Volkswagen named its 2030 strategy with NEW AUTO (New Era Automobile). In the launch ceremony of the entire strategy, batteries, charging networks, software development, and mobile travel accounted for the main space. Only the platform integration part is related to automobiles. The core content of this part is not automotive technology, but cost reduction.

In the final part of the launch ceremony, Volkswagen proposed the most remote part of the 2030 plan from reality, autonomous driving and mobile travel. Volkswagen plans to start providing self-driving taxi services in the European market in 2025, and the United States will launch the same business shortly thereafter.

According to Volkswagen's estimates, in 2030, the autonomous driving passenger transport business in the five European countries alone will have a market size of 70 billion euros. Volkswagen will integrate all travel service platforms under the group. On this platform, it provides consumers with all mobile travel services such as leasing, self-driving taxis, and shared cars, hoping to gain sufficient market share and provide profit growth for the group.

Mobility is the last piece of the puzzle in Volkswagen's 2030 strategy. Self-produced batteries and a unified model platform can help Volkswagen build low-cost electric vehicles. Low-cost electric vehicles lower the barriers to entry for mobile travel and allow more consumers to use them, thereby reducing the cost of using autonomous driving and smart cockpits, and ultimately achieving low-cost and high-quality mobile travel. This in turn can help the public obtain a large amount of travel data and continuously develop new business opportunities through big data mining. This is the complete closed loop of Volkswagen's 2030 strategy.

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