Volkswagen Takes Aim at Tesla’s Crown: Europe’s EV Landscape Shifts
While Tesla dominates the electric vehicle conversation in the U.S., a different story is unfolding in Europe. Although Tesla’s Model 3 has enjoyed success in the region, it’s not enough to dethrone the Volkswagen Group, which boasts a commanding 26% market share in the first half of 2021. This battle for EV supremacy is heating up, with Volkswagen aggressively pursuing a strategy to become the global leader in electric vehicles.
“From my point of view, electric mobility has won the race,” states a Volkswagen spokesperson. "Considering the high volumes we are targeting for, I think the customer will also benefit from the economies of scale, decreasing prices."
Volkswagen’s European dominance is rooted in several key advantages. Local manufacturing, strong brand recognition, and competitive pricing offer a compelling package for European consumers. This strong position is further amplified by Europe’s strict emissions regulations and hefty noncompliance fines, effectively pushing traditional automakers, like Volkswagen, to embrace electrification.
“Dieselgate kind of really propelled them to try to find a different way to power their vehicles," says a Bloomberg Intelligence Analyst, highlighting how the 2015 emissions scandal spurred a dramatic shift in Volkswagen’s strategy.
Under CEO Herbert Diess, appointed in 2018, Volkswagen has wholeheartedly embraced electrification with a bold commitment to invest $68 billion in electric vehicles and digital technologies by 2024. By 2030, the company aims to build 26 million EVs and offer 50 different fully electric models.
Volkswagen’s ID series of EVs, including the top-selling ID.3 and the globally popular ID.4, are already giving Tesla a run for its money. The ID.3’s base model offers a 265-mile range, comparable to Tesla’s Model 3, but at a lower price point – a significant advantage in the European market.
“In Europe, you have shorter commutes, you don’t need as big of a battery range,” explains an analyst. "So therefore, you don’t need these large cars. You can get much smaller EVs."
However, Volkswagen’s global ambitions extend far beyond Europe. The company is aggressively expanding production of its ID.4 across the U.S. and China, targeting the high-demand SUV segment, a key driver of electric vehicle sales in these markets.
While acknowledging Tesla’s current market dominance, industry analysts believe that the rise of traditional automakers like Volkswagen, coupled with the maturing EV market, will inevitably erode Tesla’s lead, particularly in Europe.
“In a growth market like EVs, it’s nearly impossible for a company like Tesla to maintain its majority market share," a Bloomberg Intelligence analyst says.
With an abundance of new EV models in the pipeline, a strategic focus on software advancements, and aggressive investment in battery production and charging infrastructure, Volkswagen is poised to become a formidable player in the global EV market. While it may not entirely eclipse Tesla, the Volkswagen Group’s commitment to electrification, combined with its vast manufacturing prowess, promises a fiercely competitive future in the electric car landscape.
Volkswagen Takes Aim at Tesla’s Dominance in Europe’s Electric Vehicle Market
In the U.S., Tesla dominates the conversation around electric vehicles (EVs), as consumers instinctively associate the brand, and Elon Musk’s eccentric, visionary persona with the push to go electric. But in Europe, it’s a different story. While Tesla’s Model 3 has been selling quite well in the region, it’s not nearly enough to knock the Germany-based Volkswagen Group out of its top spot in the European EV market, where it’s garnered about 26% market share in the first half of 2021.
Key Takeaways:
- Volkswagen Group’s aggressive push into the EV market is fueled by strict European emissions regulations and the desire to rehabilitate its image after the 2015 Dieselgate scandal.
- Volkswagen has a strong advantage in Europe due to its local manufacturing, brand familiarity, and cheaper price points compared to Tesla.
- Tesla’s dominance in the U.S. EV market is likely to be challenged by traditional automakers like Volkswagen, as they ramp up their EV production and offerings.
- Volkswagen is investing heavily in software, battery technology, and charging infrastructure to compete with Tesla.
- While Tesla holds the lead in the U.S. market, Volkswagen is strategically targeting the European and Asian markets, with a diverse range of EVs to appeal to various consumer segments.
Volkswagen’s Electric Ambitions: A Global Play
Volkswagen’s ambitions for electric vehicles are global, and they’re ambitious. "They really want to go all in on EVs," said Narayan Sivadasan, an automotive analyst at Guidehouse Insights.
The Volkswagen Group, which includes many different brands, such as Audi, Bentley, and Porsche, has an edge in Europe thanks to its local manufacturing, brand familiarity, and cheaper price points. Not to mention Europe’s tightening vehicle emissions standards and steep noncompliance fines, which pushed VW to go electric as the company sought to rehab its image in the wake of the 2015 diesel emissions scandal. "VW has no choice but to fully, aggressively pursue this strategy in Europe," said Sivadasan.
A Turning Point: Dieselgate and Electrification
In 2015, Volkswagen was caught cheating on American air pollution tests, programming their diesel vehicles to activate emissions controls only when emissions testing was in progress. But when the cars were operating regularly, they emitted 10 to 40 times the legal amount.
"Dieselgate kind of really propelled them to try to find a different way to power their vehicles," said Sivadasan. "They really had to change their image."
After the scandal, the Volkswagen Group replaced their CEO multiple times. But when Herbert Diess took the reins in 2018, he steered the company towards electrification. "It’s kind of turned into a blessing in disguise, because now the company has aggressively pushed a full electric strategy," said Sivadasan.
Diess has committed to spending about $68 billion by 2024 on electric cars and digital technologies. By 2029, Volkswagen says that it will build 26 million EVs and will offer 50 different fully electric models by 2030.
"Adding everything up, very emotional vehicles, high economies of scale. I think we will be the most profitable company in electric vehicles," Diess said.
Volkswagen’s Electric Lineup: From Compact Cars to SUVs
Here at the Transparent Factory in Dresden, Germany, Volkswagen produces a limited volume of the ID.3, its top-selling EV in Europe. This compact car is mass produced at VW’s Zwickau plant, which is now solely focused on EVs, having made its last combustion engine vehicle in June 2020.
"From my point of view, electric mobility has won the race," said Christian Vollmer, Head of Volkswagen’s Zwickau factory. "And considering the high volumes we are targeting for, I think the customer will also benefit from the economies of scale, decreasing prices."
In September 2020, VW also unveiled the ID.4, an SUV aimed at the global market that has become Volkswagen’s top-selling EV globally. While the ID.3 is not sold in the U.S., the ID.4 is. It will be produced at Volkswagen’s Tennessee plant beginning in 2022, and production is already underway in Europe and China.
Tailored for Europe: Shorter Ranges, Lower Prices
"In Europe, you have shorter commutes, you don’t need as big of a battery range," said Sivadasan. "So therefore you don’t need these large cars. You can get much smaller EVs."
The introduction of the ID series though, has given Tesla a run for its money in the region. The base model of the ID.3, for example, gets about 265 miles per charge, nearly identical to the standard Model 3. And it still costs at least $5,600 less, depending on the country.
That price differential is largely due to the fact that Tesla is not yet producing vehicles in Europe, and therefore has to pay transport fees and import taxes on its cars. That should change soon though, as Musk aims to start production at Tesla’s Berlin Gigafactory by year’s end, and ramp up the volume throughout next year.
But just like Tesla in the U.S., VW has an important head start in the region, along with deep brand familiarity. "They have a history there, much like the Detroit automakers do in the Midwest, Volkswagen has for all of Germany, if not close to all of Europe," said Sivadasan.
Volkswagen’s Global Strategy: Targeting Different Markets
With the introduction of the ID.4 SUV, Volkswagen is aiming to broaden its market share worldwide. So far, sales are picking up in both the U.S. and China.
"In the U.S. and other markets, I think the SUV segments are even stronger," said Ralf Brandstätter, VW’s CEO of Passenger Cars. "And that’s why we launched our ID.4, which is basically the electric world car for us."
Americans like bigger cars largely because they’re just less space-constrained than Europeans. More of the country is rural, roads are wider, and parking spaces are larger, making roomy vehicles more appealing.
The base version of the ID.4 costs about $40,000, more expensive than other SUVs like the Chevy Bolt or the Hyundai Kona, but definitely less pricey then the Tesla Model X or Model Y, which have both experienced substantial price hikes this year.
And it’s far from the Group’s only international all-electric offering. "Volkswagen, Audi, Porsche, all within the Volkswagen family, they all have their own different brands," said Sivadasan. "And that’s actually where Volkswagen has a very big advantage over Tesla, because they can appeal to more buyers. So every customer can find a suitable product, either it’s in the luxury segment, the sporty segment, the volume segment."
A Multi-Brand Strategy: Catering to Different Tastes
Volkswagen has a well-established multi-brand strategy for a reason. It allows them to capture a greater share of the market by catering to different tastes – whether those be for performance, luxury, or affordability. While Tesla has carved out a distinct niche with its technology-centric approach, Volkswagen is betting on versatility and scale to win over consumers.
Volkswagen’s Path to Dominance: Filling Tesla’s Gaps
But even with these myriad offerings, there’s a good chance that VW will never be the EV leader outside of its home market. "We’re big believers that the future actually looks like it’ll be one of more regional champions," said Sivadasan. "Perhaps Tesla in the U.S. or GM, VW in Europe, and then in Asia, maybe a domestic player or perhaps Tesla there."
Currently, Tesla controls about 63% of the U.S. market, with the Volkswagen Group vying for a distance second. While in China, Tesla and local automakers such as BYD and SAIC are gunning for the lead.
"All this could change rapidly in the coming years though, as the EV market matures," said Sivadasan. "And as Narayan sees it, Volkswagen may be well-positioned to fill niches that Tesla doesn’t yet reach."
"If you look at the lineup that VW has and what Tesla has, they don’t really fall into each other’s sandbox," said Sivadasan. "You know, VW has Audi and Porsche, which come at the luxury and SUV market, something that Tesla has somewhat ignored. And then where Tesla really is, is its Model 3 and Model Y, which really come above where VW brand’s offerings are, which are priced probably 20 to 30% below."
Volkswagen’s ID.6 also began deliveries in China this summer. It seats seven, to accommodate a market where multiple generations of a single family often travel together in a single car.
"If you look at what Volkswagen has coming, they’ve got another 10 or 11 VW branded vehicles coming, plus Skoda, plus SEAT, plus Audi, plus Porsche," said Sivadasan.
By 2030, Volkswagen expects that EVs will make up 50% of its total vehicle sales in both the U.S. and China.
Volkswagen’s Focus on Software, Batteries, and Charging Infrastructure
To reach these ambitious goals, analysts say that VW will need to improve upon its software and battery technologies, areas where it’s still seen as lagging behind Tesla.
Software: A Key Differentiator
"The one major advantage if you talk to anyone about Tesla, it’s their software," said Sivadasan. "The major kind of example is the over-the-air technology. Tesla was really the first to bring that out. It really showed that they are treating the vehicle more as a technology and not just something to get you from A to B."
Tesla has long pushed out vehicle updates through its app, making it simple for users to install the latest navigation, entertainment, and safety features.
"Volkswagen has a very big ambition to be a software leader," said Ralf Brandstätter, VW’s CEO of Passenger Cars. "It wants to be the second biggest software company in Europe, right after SAP." They actually believe it could be kind of a "one app to rule them all". "We expect the car to be a mobile device on wheels in the very near future. We have our own company within the Group that is purely focused on software development and autonomous driving," Brandstätter said.
Battery Technology: Bridging the Gap
When it comes to batteries, a teardown of the ID.3 revealed that Tesla’s batteries are about $1,300 cheaper than Volkswagen’s per car. But VW is thinking big, with plans to build six gigafactories throughout Europe by 2030, and one in China.
"By controlling its own battery supply chain, Volkswagen can ensure that it gets the best pricing available and can bring vehicles to market quickly, even if there’s a supply chain crunch," said Sivadasan. "They don’t want to face another situation like the semiconductor chip shortage, where they’re literally begging and pleading and negotiating, just trying to get a few small microchips."
Charging Infrastructure: Expanding the Network
Lastly, Volkswagen is investing heavily in charging infrastructure. "We are targeting for, in total, 400 charging stations in Europe, 100 of them in Germany," said Thomas Schmall, VW’s board member for Technology. "And the idea is to have every 120 kilometers, one charging point."
Volkswagen also has a U.S.-based charging division, Electrify America, that formed in the wake of the Dieselgate settlement. It’s committed to more than doubling its American and Canadian charging infrastructure by 2025. And the Volkswagen Group is building out its charging network in China too, in partnership with a local startup.
Currently, Tesla has the most charging points and it is exclusive to Tesla owners. And so you really have these two ecosystems, the Tesla Supercharger network and then kind of everybody else, who are largely interoperable. Tesla has recently opened its Supercharger network to non-Tesla owners for the first time, through a pilot program in the Netherlands. And so if this effort expands, it would be a huge boon to Volkswagen and every other EV maker. But in any event, this problem of public charging will be resolved. They’re being built at breakneck speed right now.
The Future of the EV Market: A Multi-Player Race
As Volkswagen plans to release an abundance of new EV models, works to improve its software capabilities, and builds out new battery plants and charger networks, it seems doubtless that the company will cut into Tesla’s market share, though whether it can become the global EV leader remains to be seen.
"Any automaker in the world would love to have the cachet and the appeal of Tesla right now," said Sivadasan. "They have gone beyond a car brand to a cultural kind of phenomenon."
But scale is undoubtedly on Volkswagen’s side. While Tesla has historically struggled to ramp up production, mass manufacturing is something that the Volkswagen Group knows a thing or two about.
"I think it’s an advantage for all of the traditional automakers, that they already know how to mass produce vehicles," said Sivadasan. "And not only that, if you look at the fact that they have plants to convert. It’s still a costly process, but they do have a manufacturing footprint to work with already, and Tesla is still developing theirs."
But Tesla is making progress, gearing up for production on Volkswagen’s home turf. "Tesla is obviously still gunning and growing its business, including a Gigafactory in Berlin, which is about two and a half hours away from Volkswagen’s world headquarters," said Sivadasan. "So if that wasn’t a shot across the bow at Volkswagen from Tesla, nothing really is."
The coming years will be a pivotal period for the EV market, as established players like Volkswagen push to catch up with Tesla’s lead, and new entrants continue to emerge. It’s a race that’s just getting started, and one that promises to reshape the automotive landscape forever.