In shift away from diesel, Volkswagen embraces electric

The German automaker plans to sell a million electric vehicles per year by 2025. But analysts say it's a risky bet to take. 

Volkswagen plans to bet big on electric vehicles as part of a multi-stage program to turn around declining sales following its diesel-emissions cheating scandal.

The Volkswagen Group announced Tuesday that by 2025 it plans to sell a million electric vehicles worldwide each year.

VW previously announced its intentions to focus more on battery-electric vehicles. But the German automaker’s admission earlier this year that it rigged diesel-emissions tests could be a blessing in disguise for the electric vehicle market, as Volkswagen, the largest seller of diesel-powered cars (about 50 percent of the US market before the scandal), embraces electric instead.

"It's interesting that the problems Volkswagen has had with its diesel issues has catapulted the manufacturing into this decision," Thomas Turrentine, the director of the Plug-in Hybrid Electric & Vehicle Research Center at the University of California, Davis Institute of Transportation Studies tells The Christian Science Monitor in a phone interview. "To take this risk – and there's risk – it's not playing safe. It's decided to compete at a very high level with anyone else who is trying to do this around electric."

To boost its electric sales, Volkswagen plans to expand EV production to North America, the automaker announced in a press release.

This includes "considerable investments in electric infrastructure" in North America and "local production" of electric vehicles there starting in 2021, Volkswagen brand chief Herbert Diess said in the statement on Tuesday.

"Our future electric cars will be the new trademark of Volkswagen," said Mr. Diess.

VW currently sells just one type of electric vehicle in parts of the US, the e-Golf, which it manufacturers at its Wolfsburg, Germany headquarters. 

A focus on electric vehicles is expected to be the second stage of the automaker's efforts to reemerge as a player on the North American market. The diesel scandal – in which VW admitted it equipped 11 million vehicles with software to cheat emissions tests – dealt a blow to its sales. Prior to the scandal, VW was the largest seller of diesel-powered cars. But US sales of all VW brand vehicles through the first 10 months of 2016 were down 13.1% from a year earlier to 256,047 units, according to Autodata, as USA Today reported. Overall, VW is a relatively small player in the US with 3.2 percent market share in 2016, according to Good Car Bad Car.

The first stage of VW's recovery plan is to increase its gas-powered sport-utility vehicle (SUV) and limousine sales.

"We will be significantly stepping up our activities in the USA," Diess, the brand chief, said in the statement. "In those segments, we will be strongly expanding our range."

A focus on SUVs is a safe bet. With oil prices down, SUV and pickup truck sales drove up total car sales in North America in 2015. But the shift to EVs in the next decade is not, analysts say, leaving the success of VW's move dependent on a number of unknowns.

For one, Americans have to buy more electric vehicles, says Michelle Krebs, a senior analyst at Autotrader.com.

"The consumers make the decisions," Ms. Krebs tells the Monitor in a phone interview on Tuesday. "What's the price? Does it work in my life?"

Electric vehicle and hybrid sales remained relatively stagnant in 2013 and 2014 at under 4 percent of the market, according to The Wall Street Journal. They then fell in the first half of 2015, in part because of low gas prices and increased sales in SUVs and crossovers, according to the Detroit News. While the US Energy Department predicts 200-mile-per- charge electric vehicle sales will jump to 1.18 million per year by 2025, Krebs says there could be a technological breakthrough that could reduce the price of EVs or increase their mileage on a single charge.

"A lot of things can happen between now and then," she says.

Turrentine adds that Volkswagen's expansion of its EV line will require the automaker to make major investments in the manufacturing of these vehicles. At present, VW sells about 10 million vehicles worldwide per year, according to Statista. The production of 1 million EVs every year would be 10 percent of the company's current total vehicle production. This, Turrentine notes, would require the automaker to overhaul its supply chain.  

"There are going to have to supply a million batteries a year," says Turrentine. "It has to be built, and it has to be developed. No car company has that capacity right now – not even Tesla."

But VW will join state and federal agencies in offering another incentive to American consumers: they plan to expand the nation's charging-station infrastructure. One often-cited fear about electric vehicles is the lack of charging station in the US. Earlier this month, the Obama administration announced plans to expand this network, establishing 48 national electric vehicle charging corridors. This network is intended to cover 25,000 miles of highway in 35 states. 

So what does all of this add up to?

"At least with electrification, we've reached a point where manufacturers are feeling confidence in this technology. Consumers are going to also feel confidant, and regulators, in general, seem to be very confident," says Turrentine. "A whole bunch of goals are coming together."