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Emissions squeeze sparks VW electric surge

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A Volkswagen electric car charges at a power station in Berlin on February 2, 2016. TOBIAS SCHWARZ/AFP

Emissions squeeze sparks VW electric surge

MAMMOTH German carmaker Volkswagen (VW) massively expanded on Tuesday its plans for electric car sales in the coming decade, as its scramble to meet tougher greenhouse emissions targets has already begun weighing on profitability.

Higher unit sales and increased revenues last year helped VW to a net profit 6.0 per cent higher, at €12.15 billion ($13.7 billion), the group said.

But profit margins were squeezed as the group with its 12 brands struggled with new EU emissions tests – introduced following its “dieselgate” emissions cheating scandal broke in 2015 – and massive investments in the switch to electric.

The costs did not put bosses off doubling down on their battery-powered ambitions, saying they now plan 70 new electric models by 2028 rather than 50 and lifting sales targets by seven million, to 22 million vehicles by the same date.

Job cuts

Last year, “pressure on our profit margins grew, not least because of electric mobility”, Volkswagen finance chief Frank Witter told business daily Handelsblatt.

Audi, Porsche and VW – the group’s best-known brands – all suffered lower margins last year as the so-called WLTP emissions cycle slowed production and money started pouring into electric vehicles.

Flagship VW fell below the 4.0 per cent floor executives had striven to hold.

In response, and to afford the €44 billion of investments planned by 2023, “we will have to make progress on efficiency and performance in all areas”, CEO Herbert Diess said.

December saw the group announce a €3 billion savings drive for its own-brand division on top of an existing restructuring, which is set to cost some 21,000 jobs worldwide.

Such plans are backed by major shareholders the Porsche-Piech clan, although the powerful head of the group’s works council Bernd Osterloh has warned in recent days against reported plans to slash a further five to seven thousand posts.

“We will need to make job cuts, and achieving this purely through fluctuation and partial retirement will be difficult,” Diess said on Tuesday.

Quirks in VW’s governance structure mean worker representatives in Germany can make life especially tough for executives who fail to secure their blessing.

But bosses’ eyes are turned towards competition from abroad, with Tesla in the US and a slew of Chinese newcomers seeking to achieve an unassailable lead in electric vehicles, while Google and other tech giants have stolen a march in automated driving.

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