Electric mobility has ‘won the race’ but Volkswagen hits brakes

Volkswagen AG’s all-in on electric vehicles plan is no more.

The namesake VW brand, which pitched its ID family of electric cars as central to its future, admitted last week it will need more plug-in hybrids as EV sales decelerate.

This marks just the latest adjustment VW has made to its electrification strategy after the company botched several model releases and fell behind in China, where local brands now dominate. The manufacturer has also shelved efforts to seek outside investors for its battery unit and scrapped plans for a €2 billion ($2.2 billion) EV factory in Germany.

In fact, the automaker is selling so many cars still running on combustion engines that it’s on track to overshoot its emissions allowance next year, leading Chief Executive Officer Oliver Blume to ask European regulators for leniency. It’s a sharp turnabout from only three years ago, when VW’s aggressive lobbying for EVs in the European Union opened up rifts between the company and some of its peers in the region.

VW had little choice but to lean into its electrification messaging after having bet heavily on “clean” diesel engines. That wager went sideways when the company was caught cheating on emissions tests, which forced a hard pivot to battery-powered vehicles. By 2019, then-CEO Herbert Diess announced to launch as many as 75 all-electric models over the next decade.

His EV-or-bust strategy — Diess argued that automakers needed to change quickly if they wanted to survive — rankled executives from Turin to Tokyo who wanted more time and flexibility to make the transition from combustion cars. The CEO even lauded what he saw as an early-mover advantage.

Electric mobility “has won the race,” Diess said when presenting VW’s battery strategy in 2021. “Many in the industry questioned our approach. Today, they are following suit, while we are reaping the fruit.”

While those spoils haven’t been as plentiful as VW hoped, the company isn’t U-turning from electric cars entirely.

Blume is striking partnerships with companies including Xpeng Inc. and preparing a new EV brand in China, offering models kitted out with gadgets like an in-car avatar to win back young consumers lost to BYD Co. and Tesla Inc. VW also has been in discussions with European peers including Renault SA about developing cheaper EVs to win over mass-market car buyers.

VW isn’t alone in having to recalibrate as a result of the EV slowdown. Countries including Germany and Sweden have ceased or pared back subsidies for electric cars that still tend to be more expensive than combustion counterparts, which has hurt the broader sector. Gaps in public charging networks also continue to turn off potential buyers.

Stellantis NV said Tuesday it will sell cars co-developed with a Chinese partner in Europe from September as it tries to lower the cost of its electric offerings. Mercedes-Benz Group AG has stopped development of underpinnings for new electric luxury sedans to save money and plans to sell cars running on gasoline longer than expected. BMW AG, which has had more success selling EVs than its German rivals, still warned this week that the EU’s plan to effectively ban new combustion-engine vehicle sales by 2035 will hurt the industry. European regulators are set to review the policy in 2026.

The slowdown has dealt a serious blow even to Tesla, which has lost $235 billion in market capitalization this year, more than triple VW’s current valuation. CEO Elon Musk has nevertheless criticized carmakers for backtracking.

“The EV adoption rate globally is under pressure, and a lot of other auto manufacturers are pulling back on EVs and pursuing plug-in hybrids instead,” Musk said last month when discussing Tesla’s first-quarter earnings. “We believe this is not the right strategy, and electric vehicles will ultimately dominate the market.”

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