Volkswagen Plans Almost $200 Billion in Investment Focusing on EVs, New Tech

The move is the first major strategy announcement by Chief Executive

Oliver Blume

since he took the reins at VW in September after the board ousted his predecessor,

Herbert Diess.

With the company’s new five-year investment plan, Mr. Blume is now starting a spending war with rival auto makers as he tries to claw back market share in China and make the company’s U.S. business relevant after decades of failed attempts to build significant market share.

The big spending by Volkswagen—totaling 180 billion euros, equivalent to $193.2 billion—comes as governments around the world shell out subsidies to encourage companies to invest in technologies that speed up the transition away from greenhouse-gas emitting fossil fuels. VW is relatively flush with cash after reaping billions of euros in proceeds from the listing of sports-car maker

Porsche AG

last year.

The Biden administration’s Inflation Reduction Act unleashed more than $300 billion in government spending aimed at encouraging so-called clean-tech investments, and has sparked a race between the U.S., Europe and other economies to attract green corporate investments.

VW said Monday that it would build its first battery plant outside Europe in Canada. That announcement followed a decision earlier this month to invest $2 billion to build a new factory in South Carolina to build Scout brand all-electric trucks and SUVs.

“We have set clear and ambitious targets and took necessary decisions to streamline processes,” Mr. Blume said. This year “will be a decisive year for executing strategic goals and accelerating progress across the group,” he added.

After several failed attempts to boost VW’s market share in the U.S., Mr. Blume is building on his predecessor’s strategy of stepping up investment in EV development, which will benefit from the IRA’s incentives.

VW executives have been lobbying EU officials hard to bolster European subsidies to match President Biden’s moves to attract investment. The German car maker has been wrangling with Eastern European governments for months in a bid to squeeze more state aid out of them for building a planned battery factory in the region. It still has made no decisions about the planned battery plant.

VW’s technology chief,

Thomas Schmall,

posted on his LinkedIn page recently that Europe was “lagging behind” on battery development and “the conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming months and years.”

VW’s new plan includes about $16 billion for investment in its battery business, but it is unclear how much of that will flow to Europe.

Arno Antlitz,

VW’s finance chief, told reporters during Tuesday’s press conference that the funds would be used primarily to secure raw materials for EVs.

VW is currently building a battery plant in

Salzgitter,

Germany. The company said last year that it would invest €10 billion to build a battery plant on the outskirts of Valencia, Spain, to provide battery cells for its auto-manufacturing plants in Martorell and Pamplona.

The Spanish government said it would provide up to €877 million in subsidies to VW and its Spanish subsidiary, Seat, toward the construction of the plant. That compares with estimates by European Battery Alliance members at a March meeting that a European manufacturer could receive up to $10 billion in aid under the IRA, according to people who attended the meeting.

The European Union, meanwhile, is set to roll out details later this week of a plan it says will compete against that IRA money. Brussels has said it would loosen restrictions on member states providing subsidies and state aid to keep investment in Europe.

In China, VW’s single largest market, sales tumbled 41% in January and accounted for 33% of the company’s worldwide sales. The company has lost market share to

Tesla Inc.

and local Chinese manufacturers such as

BYD Co.

Recently, BYD has begun advertising on television in Germany, introducing images of its electric cars cruising European roads and dubbing itself “the biggest electric car maker in the world.”

VW’s ID series of all-electric cars underperformed expectations in China.

Competition for China’s EV consumers is so hot that manufacturers are embroiled in a bitter price war. BYD is offering discounts of up to $1,000 a vehicle, according to Evercore ISI, a brokerage, and recently VW and

Bayerische Motoren Werke AG

joined the race after holding prices steady in January. Evercore said more than 30 automotive brands are engaged in the price war in China.

VW has formed strategic alliances by taking stakes in battery and software companies in China. Mr. Blume said the development of software for the Chinese market would soon lead to the inclusion of specific products such as in-car karaoke apps that some Chinese rivals offer.

Another pressure point for VW in China is the mounting criticism from U.S. and European politicians and human-rights groups of its presence in the western Chinese region of Xinjiang, where Beijing’s treatment of mostly Muslim minorities has drawn international condemnation.

Write to William Boston at [email protected]

The move is the first major strategy announcement by Chief Executive

Oliver Blume

since he took the reins at VW in September after the board ousted his predecessor,

Herbert Diess.

With the company’s new five-year investment plan, Mr. Blume is now starting a spending war with rival auto makers as he tries to claw back market share in China and make the company’s U.S. business relevant after decades of failed attempts to build significant market share.

The big spending by Volkswagen—totaling 180 billion euros, equivalent to $193.2 billion—comes as governments around the world shell out subsidies to encourage companies to invest in technologies that speed up the transition away from greenhouse-gas emitting fossil fuels. VW is relatively flush with cash after reaping billions of euros in proceeds from the listing of sports-car maker

Porsche AG

last year.

The Biden administration’s Inflation Reduction Act unleashed more than $300 billion in government spending aimed at encouraging so-called clean-tech investments, and has sparked a race between the U.S., Europe and other economies to attract green corporate investments.

VW said Monday that it would build its first battery plant outside Europe in Canada. That announcement followed a decision earlier this month to invest $2 billion to build a new factory in South Carolina to build Scout brand all-electric trucks and SUVs.

“We have set clear and ambitious targets and took necessary decisions to streamline processes,” Mr. Blume said. This year “will be a decisive year for executing strategic goals and accelerating progress across the group,” he added.

After several failed attempts to boost VW’s market share in the U.S., Mr. Blume is building on his predecessor’s strategy of stepping up investment in EV development, which will benefit from the IRA’s incentives.

VW executives have been lobbying EU officials hard to bolster European subsidies to match President Biden’s moves to attract investment. The German car maker has been wrangling with Eastern European governments for months in a bid to squeeze more state aid out of them for building a planned battery factory in the region. It still has made no decisions about the planned battery plant.

VW’s technology chief,

Thomas Schmall,

posted on his LinkedIn page recently that Europe was “lagging behind” on battery development and “the conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming months and years.”

VW’s new plan includes about $16 billion for investment in its battery business, but it is unclear how much of that will flow to Europe.

Arno Antlitz,

VW’s finance chief, told reporters during Tuesday’s press conference that the funds would be used primarily to secure raw materials for EVs.

VW is currently building a battery plant in

Salzgitter,

Germany. The company said last year that it would invest €10 billion to build a battery plant on the outskirts of Valencia, Spain, to provide battery cells for its auto-manufacturing plants in Martorell and Pamplona.

The Spanish government said it would provide up to €877 million in subsidies to VW and its Spanish subsidiary, Seat, toward the construction of the plant. That compares with estimates by European Battery Alliance members at a March meeting that a European manufacturer could receive up to $10 billion in aid under the IRA, according to people who attended the meeting.

The European Union, meanwhile, is set to roll out details later this week of a plan it says will compete against that IRA money. Brussels has said it would loosen restrictions on member states providing subsidies and state aid to keep investment in Europe.

In China, VW’s single largest market, sales tumbled 41% in January and accounted for 33% of the company’s worldwide sales. The company has lost market share to

Tesla Inc.

and local Chinese manufacturers such as

BYD Co.

Recently, BYD has begun advertising on television in Germany, introducing images of its electric cars cruising European roads and dubbing itself “the biggest electric car maker in the world.”

VW’s ID series of all-electric cars underperformed expectations in China.

Competition for China’s EV consumers is so hot that manufacturers are embroiled in a bitter price war. BYD is offering discounts of up to $1,000 a vehicle, according to Evercore ISI, a brokerage, and recently VW and

Bayerische Motoren Werke AG

joined the race after holding prices steady in January. Evercore said more than 30 automotive brands are engaged in the price war in China.

VW has formed strategic alliances by taking stakes in battery and software companies in China. Mr. Blume said the development of software for the Chinese market would soon lead to the inclusion of specific products such as in-car karaoke apps that some Chinese rivals offer.

Another pressure point for VW in China is the mounting criticism from U.S. and European politicians and human-rights groups of its presence in the western Chinese region of Xinjiang, where Beijing’s treatment of mostly Muslim minorities has drawn international condemnation.

Write to William Boston at [email protected]