In a major strategic shift, German carmaker Volkswagen has announced a โฌ60 billion investment in the development of combustion engines, calling into question its previously planned all-electric transition. The move reflects the growing challenges facing the auto industry in its race to electrification.
An unexpected change of direction
While 2024 was supposed to mark the definitive take-off of the electric car, more and more signals indicate a change of direction. Volkswagen, one of the world's largest car manufacturers, is making a major strategic shift by announcing a colossal investment of 60 billion euros in thermal engines.
This surprising decision comes at a time when the European automotive industry is facing a reality that is very different from its expectations. Not only has the electric vehicle market not seen the take-off hoped for in 2024, but sales have even slowed down, forcing manufacturers to review their roadmaps drawn up a few years ago.
The challenges of the electrical transition
Driven by Brussels' ambitious agenda, many manufacturers were quick to announce medium- and long-term plans for a complete conversion to electric. Mercedes, for example, had declared that all its new models would be electric from 2030.
However, these long-term projections, influenced by a favourable political context, are now colliding with market reality. The famous Euro 7 emissions standard, initially planned for 2025, has not only been postponed to 2027, but has also seen its requirements significantly reduced.
A general movement of retreat
Volkswagen is not alone in this strategic shift. Other big names in the automotive industry have also revised their ambitions downwards:
โ Mercedes admitted it was โperhaps too optimisticโ and will continue to produce combustion engines beyond 2030.โ Hyundai said it would continue to develop electric vehicles while maintaining a diverse powertrain range.โ Ford no longer believes it can be fully electric in Europe by 2030.โ Luxury brands such as Aston Martin will continue to make combustion-engined cars into the next decade.
The reasons for this change of direction
Volkswagen Group CFO and Operations Director Arno Antliz said the massive investment in combustion engines was aimed at โmaintaining the competitiveness of our combustion cars.โ The move marks a dramatic turnaround from the groupโs previous announcements, which planned to manufacture and sell only electric cars in Europe from 2033.
Customer response has not lived up to expectations, forcing Wolfsburg's management to review its strategy. Of the 180 billion euros initially earmarked mainly for the new generation of electric models, a third will now be allocated to combustion engines.
The uncertain future of synthetic fuels
While some brands within the Volkswagen Group, such as Porsche, have long been working on the development of synthetic fuels (e-fuels), Volkswagen CEO Thomas Schรคfer last year called the internal combustion engine “old technology” and the debates around synthetic fuels “meaningless noise”.
This position contrasts with that of other brands in the group, such as Lamborghini and Bentley, which continue to explore alternative ways to use combustion engines, placing great hopes in carbon-neutral fuels.
Implications for the European automotive industry
The strategic shift by Volkswagen and other European automakers raises questions about the future of the continentโs auto industry. Europe, the birthplace of the combustion engine, has long taught the world how to build cars. But in this era of electrification, it risks being left behind by Asian automakers, particularly China, which dominate the production of electronic components and batteries.
Volkswagen's decision to invest heavily in combustion engines reflects the challenges facing European automakers: a slower-than-expected electric transition, fierce competition from Asia, and the need to maintain their competitiveness in the global market.
This strategic shift marks a turning point in the history of European automotive and could redefine the balance of power in the global automotive industry in the years to come.
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