Volkswagen (VW) announced a high-voltage jolt to its EV investments on Tuesday.
What does this mean?
Europe's biggest carmaker VW has some lofty ambitions: the firm’s going all-in on EVs, in the hope that green-powered cars will account for half of its sales by 2030. But to pull that gambit off, it’s going to need a lofty budget too. See, the moves VW’s making in the battery space are pretty pricey – six factories in Europe don’t come cheap – and sourcing raw materials to make EVs is a major cash drain. And there are even more expenses in the cards: the firm’s expanding in the US and China (its biggest market) to try and fend off growing competition. All in all, then, VW’s planning to shell out over $190 billion on those key areas over the next five years – with over two-thirds earmarked for electrification and digitization.
Why should I care?
For markets: Cash crunch.
VW might've plumped up profit across all its brands last year, but repeating that feat this year could prove tricky. For one, VW hiked prices when customers couldn’t get their hands on new cars last year, which added polish to 2022's shining performance. But this year, supply shortages are expected to ease, so folks won't be so willing to pay a premium for speedy delivery. And for another, VW's planned spending spree made investors worry about its cash flow – which might be why shares dropped when news broke.
The bigger picture: Accelerating market.
VW’s pushing in the right direction, mind you: data out last month showed that spending on EVs is surging, with annual sales hitting $388 billion last year – up 53% from 2021. And what's even more impressive is that the last 18 months accounted for nearly 60% of the total EV spending ever. No wonder analysts are predicting another record-breaking year, forecasting that sales will overshoot $500 billion in 2023.
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