WOLFSBURG, Germany— Volkswagen AG’s VLKAY 1.64% namesake brand will make an aggressive push in the U.S. and begin a concerted shift toward electric vehicles as it looks to revive its brand and recharge its bottom line.
Herbert Diess, VW brand chief, presented his first detailed strategy overview after a bruising year in which the company was mired in a painful and expensive emissions cheating scandal and after announcing plans last week to shed 30,000 jobs world-wide over the next few years.
Volkswagen, faced with falling sales in most major markets and huge costs associated with the emissions scandal, is abandoning an earlier target of tripling its pretax profit margin to 6% of sales by 2018.
The brand’s new focus is 2025, when it aims to reach its profit target, post annual sales of at least one million electric vehicles and achieve “considerable profits” from an estimated €1 billion ($$1.06 billion) in additional revenue from in-car digital services.
The U.S., the world’s largest car market, is to play a big part in Mr. Diess’s plan to revive the embattled VW brand. Volkswagen is a niche player in the U.S. with less than 2% of the total market by sales.
Volkswagen last month launched the Atlas seven-seat sport-utility vehicle, its largest so far, and is expected to follow with additional models soon.
Mr. Diess said the company will need a decade to rebuild the brand in the U.S., and its strategy will be driven in part by the launch of 17 new SUVs world-wide by 2020, and a bid to become the market leader in electric vehicles.
“We want to take a big step and then continuously expand,” Mr. Diess said. “You need a lot of stamina, a long-term plan, a clear strategy, and you have to pay attention to the tastes of American customers.”
Mr. Diess also said Volkswagen wouldn’t reintroduce diesel engines to the U.S. market, after the company was obliged to stop selling diesel-powered cars in the wake of disclosures last year that it rigged diesel engines to cheat on emissions tests.
The company will begin manufacturing electric vehicles in the U.S. in 2021, Mr. Diess said. He said the company was considering locations—including its VW plant in Chattanooga, Tenn., plant—to build a facility to produce cars on the company’s new standardized platform for electric vehicles.
“Chattanooga is an option; it hasn’t been decided yet,” he said.
Mr. Diess said Volkswagen would launch mass production of electric vehicles in Europe in 2020, based on its new electric-vehicle manufacturing architecture, MEB.
“We are not targeting niche products,” Mr. Diess said, “but rather the heart of the automotive market, the big volume segments.”
He read a litany of past mistakes the company has made, saying VW manufacturing and labor costs in Germany were too high, that management in the past failed to see the global shift toward sport-utility vehicles, and that a top-down, bureaucratic management structure slowed the company down and weighed on profitability.
“We have to quickly become more profitable,” Mr. Diess said. “This will be the biggest process of change in the history of our brand.”
Passed over for the chief executive’s job at BMW AG , Mr. Diess joined Volkswagen in July 2015. At BMW, he was instrumental in cutting costs and driving the company’s return to record profits over the past few years. He is under pressure to deliver similar results quickly at VW.
Mr. Diess said the VW brand would rapidly expand its portfolio of SUVs, aiming to have 19 models in showrooms by 2020, compared with just two models today. VW’s market share of total SUV sales is expected to more than double in Europe to 30% by 2020. In the U.S., the German auto maker wants to increase its market share of SUVs to 35% by 2020 from roughly 15% today.
The emission crisis has handed Mr. Diess an opportunity to enact extensive change. In the past, Volkswagen was known for the multitude of variations in its vehicles, which gave customers a wide range of choices of components and engine types. To cut costs, Mr. Diess said the company is now set to streamline components, only offering options that are backed up by robust sales.
Volkswagen also aims to simplify its complex web of models and components. The company aims to reduce options on successive models by up to 60% and on component options for its model platforms by 40%, including a reduction by up to 40% of the various powertrains available for its models.
Corrections & Amplifications:
Volkswagen expects to generate €1 billion in additional revenue from digital services. Due to an error in the Volkswagen statement, a previous version of this story said revenue would be €3 billion. (Nov. 22, 2016)
Write to William Boston at email@example.com
Appeared in the November 23, 2016, print edition as ‘VW Maps Out Plan to Rev Profit.’