Editors note: An earlier version of this story incorrectly reported that VW’s commitments included upgrades to Audi’s Mexican assembly plant.
Volkswagen Group of America plans to spend at least $7.1 billion in North America through 2027 to build up its local electric vehicle production capacity — including construction of a battery plant as well as overhauls of its assembly plant in Puebla and an engine plant in Silao, Mexico — and bolster interim ICE-powered production as part of a push to regionalize its product decisions for the continent.
The company aims to introduce more than 25 new battery-electric vehicles through 2030 across the group’s brands that sell in the U.S.: VW, Audi, Porsche, Bentley and Lamborghini. But more importantly, it also plans to localize “all major design and engineering responsibilities” for top-hat development of EVs for North American consumers by 2030 — a move that could, in theory, allow VW to produce an electric midsize pickup for U.S. consumers, as well as other products.
“The Volkswagen Group has taken a leadership position in the American EV market. To continue that conquest, we’re investing over $20 million through June of this year into our dealers nationwide, transforming them into EV experience hubs serving communities across the country,” Volkswagen Group of America CEO Scott Keogh said. “The reason is simple: We are transforming Volkswagen into an EV brand and I could not be more personally committed to this course.”
Keogh aims to push products that would allow the VW brand to capture 55 percent of its annual sales as EVs by 2030. Much of its future EV product lineup is already known: the ID4 compact crossover, which will begin local production at VW’s Chattanooga Assembly complex in the second half of 2022; the ID Buzz minivan, which will be imported from Europe beginning in 2024; a long-range sedan, called the ID Aero, in 2025, and electric versions of the Atlas and Atlas Cross Sport beginning in 2026.
VW will begin phasing out sales of internal combustion engine-powered vehicles in North America after the turn of the decade, Keogh said.
Full details of the German automaker’s spending plans weren’t revealed. For example, whether its planned increase in North American battery production would be done in-house or in partnership with a supplier. Battery-maker SK Innovation built a plant in Georgia to supply VW’s initial EV assembly operations in Chattanooga.
In comments last week, Volkswagen Group CEO Herbert Diess said the world’s second-largest automaker planned an aggressive expansion of battery production to supply its EV ambitions.
However, “the group is currently assessing governance and finance models, and aims to finalize decisions through 2022,” regarding its battery plant aspirations in North America, the company said Monday. In May, VW will open a $22 billion battery engineering lab in Chattanooga to test and validate batteries used domestically.
Details of a full transition of its Mexico operations to EV production were also left undisclosed. The company said the overhauls of the group’s two Mexican plants is “for the assembly of electric vehicles and components [such as e-motors] by the middle of the decade.” Puebla currently assembles the VW Tiguan and Taos crossovers and the VW Jetta sedan.
In comments later Monday, Keogh said part of VW’s transformation will be to its business operations as well, allowing the company to “be faster” as it switches from being “an import business” to taking local responsibility for engineering, purchasing and production of vehicles sold in North America.
“I think that’s a lot about what the $7.1 billion invest[ment] is about. It will also allow us to make the decisions that are right for the market,” including a potential EV pickup for the VW brand, Keogh said. “At the end of the day, let’s call it ‘the math’ still needs to make sense; it’s still the automotive business, so you need scale, you need efficiencies, and you do a proper business case. But yes, we can do those things regionally.”
Keogh also said that plant capacity for EV production in Chattanooga could ultimately reach up to 100,000 to 120,000 annually after ID4 is fully ramped up. The plant is currently doing pilot builds, with a start-of-production planned for August/September. That level of production “is exactly what the doctor ordered for that vehicle,” to meet demand across North America, Keogh said. “I think we always had a bridge period to get the market ready, to get the dealers ready, to get Chattanooga up to speed. And frankly, the bridge period has been overwhelmed by demand for the ID4. The market is going through the roof.”
As for a potential EV pickup, Keogh said the company “has some different ideas and we have some different proposals, and I promise we will make the announcement as it’s ready. I think it’s a good idea. I think it’s a good opportunity. Let’s see how it comes to life.”
Asked about leasing rates, Keogh said that VW historically had probably been too reliant on high leasing rates and incentives, and said the ongoing inventory shortage had provided the company with an opportunity to reset its business and make it more profitable. He said he would like to see leasing penetration fall to about 40 percent for VW to allow for a steady stream of returning customers while reducing incentive spend and dealer inventory carrying costs, which hurts profitability.