As the Diesel Emits: Volkswagen Cuts Its R&D Budget, Reviews Other Investments

On Friday, Volkswagen made an announcement that many of us were expecting, cutting its massive R&D budget. The company will cut 1 billion Euros (about $1.1 billion) from R&D to prepare itself for the massive fines that will be heading its way in the near future due to the emission scandal.

Along with this, Volkwagen announced that it would be capping spending on property, plant and equipment at around 12 billion euros ($12.8 billion) for next year. This is about eight percent smaller than the previous plan put forth by the company. In a statement, Volkswagen CEO Matthias Mueller said a number of projects are being delayed or put on hold, including a new design center in Germany and a paint shop in Mexico.

"We are operating in uncertain and volatile times and are responding to this. We will strictly prioritize all planned investments ... anything that is not absolutely necessary will be cancelled or postponed," said Muller.

Now a report from German publication WirtschaftsWoche says Volkswagen is considering closing the Dresden, Germany plant to cut more costs. This plant known as the Transparent plant is where Volkswagen currently builds the Phaeton. Currently the plant employs 500 people, but only produces eight Phaetons a week. The Phaeton has never been a big seller for Volkswagen as it only sold 4,000 models last year.

If Volkswagen goes forward with closing the Dresden plant, it would move production of the Phaeton to another factory. It would also move the 500 workers to another facility. When reached for comment by Automotive News, Volkswagen neither confirmed or denied the report, only saying the factory was being considered for 'various scenarios'.

Source: New York Times, WirtschaftsWoche, Automotive News (Subscription Required), Volkswagen

Press Release is on Page 2

Volkswagen Group reduces level of capex

• CEO Matthias Müller: "We will strictly prioritize all investments and expenditures"
• Even greater focus on alternative drive technologies and digitalization
  

Wolfsburg, 20 November 2015 - The Volkswagen Group is aligning investment activity in its Automotive Division with the current situation. The aim is for planned investments in property, plant and equipment, investment property and intangible assets, excluding capitalized development costs (capex), to be capped at approximately EUR 12 billion next year. The average figure for the previous planning period was about EUR 13 billion per year.

"We are operating in uncertain and volatile times and are responding to this", said Matthias Müller, Chairman of the Board of Management of Volkswagen Aktiengesellschaft, in Wolfsburg on Friday, after a regular meeting of the Company's Supervisory Board. "We will strictly prioritize all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed."

In this context, Müller announced the intention to increase expenditure on alternative drive technologies by approximately EUR 100 million next year. "We are not going to make the mistake of economizing on our future. For this reason we are planning to further increase spending on the development of e-mobility and digitalization", he said. The core focus will be on rapidly developing electric drive systems for the Volkswagen Passenger Cars, Audi and Porsche brands.

Most of the capex is earmarked for new products, the continuing rollout and enhancement of the modular toolkits, and the completion of ongoing investments to expand capacity. Examples include product start-ups such as the next-generation Golf, the Audi Q5, the new Crafter plant in Poland, as well as upfront expenditures for the modular electric toolkit (MEB). Approximately 50 percent of capex will be spent on the Group's 28 locations in Germany.

Müller also outlined the first projects as examples where investments are being spread out to a greater extent or cut back. For example, construction of the planned new design center in Wolfsburg is being put on hold, saving approximately EUR 100 million. In addition, the construction of a paint shop in Mexico will be reviewed. In the model range, the successor to the Phaeton – a pure-play electric model – is being delayed. "We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk", explained Müller. He added: "Together with the works council representatives we will make every effort to keep our core workforce on board."

The joint ventures in China are not consolidated and are therefore not included in the above figures. These companies will maintain their previously announced investment levels and are planning expenditures in the amount of approximately EUR 4.4 billion in 2016. These investments will be financed from the joint ventures' own funds.