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Wednesday, June 15, 2016

Volkswagen to boost electric and autonomous cars

BERLIN -- Volkswagen AG Chief Executive Matthias Müller plans to unveil a sweeping restructuring Thursday, the broadest overhaul of the company in decades and part of the car maker's effort to get past its emissions crisis in part by moving aggressively into electric vehicles, self-driving cars and digital mobility services.

Mr. Müller aims to streamline a company that sells more than 10 million cars annually, operates more than 100 factories from China to Chattanooga, Tenn., and employs more than 600,000 people yet chronically lags behind the profitability of its main rivals, Toyota Motor Corp. and General Motors Co.

"We have to catch up with the best," Mr. Müller told a gathering of the company's top executives last month, according to excerpts from his comments seen by The Wall Street Journal.

The former Porsche chief took the reins of its parent company in September, after his predecessor and onetime mentor, Martin Winterkorn, resigned under pressure in the wake of the disclosure by U.S. authorities that Volkswagen had rigged diesel engines to cheat on emissions tests.

Mr. Müller's plan, dubbed "Strategy 2025," aims to fix some of the company's sluggish businesses, such as the namesake Volkswagen brand, which generates a tiny profit, and try to squeeze cost-savings from the broader group by capitalizing on the company's scale and product range.

Volkswagen has begun implementing some of the strategy goals that will be outlined in more detail in the plan, Mr. Müller has said, such as accelerating development of digital technology, self-driving cars and electric powertrains to confront the challenges posed by tech rivals such as ride-hailing service Uber Technologies Inc. and Alphabet Inc.'s Google, which is developing self-driving cars.

"Looking ahead, the car won't be our only core product for much longer. Our core product, our promise to people, is mobility," Mr. Müller said recently as he unveiled a $300 million investment in Israeli ride-hailing app GETT.

Under pressure from regulators to cut greenhouse-gas emissions, Volkswagen plans to boost its offering of battery electric and plug-in hybrid electric vehicles to 20 models by 2020. The company now makes three battery electric cars and six hybrids. Volkswagen is targeting sales of 1 million electric vehicles a year by 2025.

Shortly after he took command, Mr. Müller hired an Apple Inc. executive, Johann Jungwirth, as the company's new Chief Digital Officer. Mr. Jungwirth is building a team that will have about 100 members tasked with redesigning the interior of the car to improve the passenger experience in an age of digital services and self-driving cars.

"We can learn a lot from Amazon," Mr. Jungwirth said.

Volkswagen plans to make GETT the nucleus of a new mobility-services unit, one of the first major strategic moves by Mr. Müller as CEO. The unit is expected to be based in Berlin, at arm's length from headquarters in Wolfsburg and close to the city's thriving tech scene.

The acquisition is a small financial step but a leap for Volkswagen, which until the diesel crisis tended to only pay lip service to electric vehicles and technology that is reshaping the auto industry.

"Before Diesel-gate we were already on the move, but there was an additional push after the new board was put in place," said Ole Harms, who will run the new mobility business.

Mr. Müller's new strategy overhauls the plan put in place by Mr. Winterkorn in 2007, which aimed to make Volkswagen the biggest and most profitable car company in the world by 2018. Volkswagen overtook Toyota as the biggest car maker by sales briefly last year and again in the first three months of this year.

In his quest for global dominance, Mr. Winterkorn invested heavily in new plants to achieve global scale but took his eye off profits, analysts said. In developing his new strategy, Mr. Müller has repeatedly emphasized that size alone doesn't matter.

"It just cannot be that an enterprise that sells 10 million vehicles a year is not able to leverage the scale and savings to the extent that it should be possible," he told executives last month.

One suggestion on the table is to combine the various component manufacturing activities of the 12 brands into a single business unit that serves the entire group. Many of the brands share components, including volume brands Volkswagen, Skoda and Seat, and premium brands Audi, Porsche and Bentley.

Analysts think Volkswagen could achieve considerable savings by combining the components business, but the proposal has also met opposition at Audi, according to people familiar with the situation.
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