Europe’s largest automaker Volkswagen is currently in the midst of a substantial push to keep up with rivals such as Tesla and Toyota. The company says that it plans to invest substantial sums of money – to the tune of $31 billion – of the coming years in an attempt to close the tech gap. According to Chief Executive Office Herbert Diess, nothing is off the table. VW wants to become a fully digitized company, offering a similar level of service to its electric-only brand rivals.
VW’s strategy is to team up with multiple technology firms to develop technologies in partnership. It believes that this approach will be more efficient than bringing everything in-house – a strategy used by Tesla. As such, Diess says that third-party vendor funding will double over the coming five years, compared to the company’s previous five-year plan. It wants to use multiple technology platforms and leverage economies of scale, the company says.
VW recognises the urgency of the situation. Compared to Tesla, it’s current technology stack is considerably behind the times. From an engineering perspective, it still makes highly desirable vehicles, but consumers are looking for more tech-enabled services
Electrification is a large part of VW’s current strategy. However, the firm knows that the future of vehicle ownership will be very different from today. It is more than merely putting electric motors into regular car chassis. Instead, vehicles are likely to move over to a subscription model, similar to a car lease. Owners will pay by the mile by 2030, and VW wants to be at the front of that business model. It doesn’t want to become relegated to mere production.
To achieve this, VW is going to need a vast repository of data to support its autonomous ambitions. Already, sister company Audi is making deep in-roads into this area, but Diess sees autonomy as a greater disruption even than electrification.
However, it is unlikely that VW will develop a passable autonomous technology in-house. Instead, it is more likely that it will attempt to integrate with Google’s systems as they become available over the coming years. Not developing autonomy in-house means that VW will likely struggle to attract significant margins for its services, potentially leaving it worse off.
VW may also decide to work with Apple. However, the type of digital services available through the world’s biggest company will likely differ from those provided by Google. Apple will focus more on integrating existing car systems into a single platform, instead of specifically focusing on autonomy.
VW recognizes that car software is a kind of final frontier for European automakers. Currently, they are significantly behind their US and Japanese rivals. However, Diess sees that changing. He believes that, in the end, only relatively few software stacks will prevail. He sees perhaps two or three major autonomy players in the future, with cars integrating heavily with smartphones, and not the other way around.
How this plays out for VW remains to be seen. The carmaker is still reeling from the emissions scandal and is still trying to find its feet. The 2020s will undoubtedly be a disruptive decade for it.
