Volkswagen Charting ‘Reset’ on BEVs

Volkswagen is undergoing significant pain owing to a bloated global headcount, declining sales and profits in China and mounting competition from Chinese battery-electric-vehicle makers in Europe. But even with all that, the German automaker is working on an EV reset with new designs and a software partnership with Rivian bringing the first fruits of change by the end of 2025.

VW’s cheapest BEV model in its product plan, the ID.2, is on track to launch in Europe by the end of 2025 or early 2026, says VW brand chief Thomas Schafer at the Los Angeles auto show, marking a new “starting point,” he says, for the German auto giant.

The brand’s “ID” electric-car lineup, which has been met with uneven response from the public both in Europe and North America, is getting new designs that are closer to some of VW’s classic “iconic” design language, says Schafer, pointing to the Golf, Polo and Passat. The Tiguan comes in a PHEV in Europe, and Schafer confirmed in a media roundtable that the North American Tiguan and Atlas SUV in the U.S. will get traditional hybrid powertrains as early as the 2026 model year.

VW showed a concept of the forthcoming ID. 2 earlier this year, but VW executives say that the design has undergone further work since its reveal by VW Chief Designer Andreas Mindt.

The production hatchback version is expected to be unveiled at the Munich Motor Show next year, and VW confirms there is a GTI version of the BEV in the pipeline. The ID.2 will be the first BEV based on the automaker’s new MEB Entry Platform.

VW, Ford and GM are pinning hopes of BEVs becoming profitable with the acceleration of lower-cost platforms that will make the vehicles more affordable to consumers whether or not U.S. and European Union incentives stay in place.

In 2024, the Volkswagen Group faced significant financial challenges, marked by a 64% decline in third-quarter net profit to €1.57 billion ($1.65 billion), according to company financial reports, primarily due to decreased sales in China and substantial restructuring expenses. The company's revenue experienced a dip to €78.5 billion ($82.6 billion), and it announced plans to close three German plants and reduce its workforce, aiming to address overcapacity and maintain competitiveness. The VW brand's operating margin fell sharply too, indicating a need for further cost-cutting measures.

Competitively, VW has struggled against rising competition from Chinese electric-vehicle manufacturers like BYD and Zeekr, as well as established players such as Tesla. In China, its largest market outside Europe, the company reported a 12% drop in sales during the first nine months of the year. To counter these challenges, Volkswagen invested $700 million in XPeng to co-develop new BEV models tailored for the Chinese market, aiming to regain its competitive edge against domestic BEV makers. But that task will not be easy as Chinese automakers are quickly displacing Western automakers at home with lower prices and better connected-car systems.

Despite these efforts by VW, the company continues to face enormous pressure from more agile competitors offering advanced BEVs at lower prices, highlighting the urgency for the automaker to accelerate its low-cost electrification strategy.

In 2024, Volkswagen Group's electric-vehicle sales in Europe experienced fluctuations. In the first quarter, the company delivered 74,400 BEVs in Europe, marking a 24% decline compared to the same period in 2023, the company reported.

By the second quarter, VW's European BEV sales showed signs of recovery, with 109,700 units delivered, but still representing a 7.7% decrease year-over-year. Despite these challenges, the company maintained its position as the leading BEV manufacturer in Europe, with 178,000 units registered in the first half of 2024. However, this figure reflects a 14% decline from the previous year, indicating the competitive pressures and market dynamics affecting VW's BEV sales in the region.

The company’s recovery depends on becoming more competitive against Chinese BEV makers both in China and Europe.