Volkswagen bets on combustion engines for profitability

Volkswagen Group has announced plans to allocate a significant portion of its 2023 electric vehicle budget—one-third—to the development of more competitive internal combustion engines.

This announcement marks a significant departure from Volkswagen's previous commitment to exclusively sell electric vehicles by 2033, Caliber.Az reports, citing foreign media.  

Volkswagen plans to invest $60 million in internal combustion engines. The shift to electric has proven to be a slow and challenging process for many automakers, forcing companies to choose between investing in less popular electric models for environmental reasons or continuing to develop combustion engines to maintain profitability.

Arno Antlitz, Chief Financial Officer and Chief Operating Officer of the Volkswagen Group, remarked, “The future is electric, but the past is not over yet. It is one-third now and will remain one-third.” Volkswagen has previously criticized internal combustion engines, indicating a strong shift toward electric vehicles. Last year, Thomas Schäfer, the head of the Volkswagen brand, described internal combustion engines as “old technology,” asserting that electric vehicles and e-fuels represent the future.

The decision to allocate part of their electric vehicle budget to internal combustion engines may stem from uncertainty regarding the EU's 2035 ban on fossil fuels and whether it will remain intact.   Although electric vehicle sales are declining in both the United States and Europe, Volkswagen's plug-in hybrid models continue to enjoy popularity.

Despite the ambitious plans of many automakers to transition to fully electric fleets by the end of the decade, they face challenges in persuading consumers to completely abandon traditional combustion engines. It seems that hybrid vehicles are the limit of consumer willingness to move away from the familiar combustion engine. 

Given this context, other brands within the Volkswagen group, such as Lamborghini and Bentley, are exploring ways to continue utilizing internal combustion engines without relying on fossil fuels. Several automakers have reevaluated their strategies for transitioning to fully electric vehicles. 

For instance, Bentley has postponed its goal to become fully electric by 2030, pushing the timeline back by three years, while Ford and Aston Martin are also reconsidering their electric-only plans.   E-fuels may offer a solution for achieving a carbon-neutral future.

Recognizing that consumers are still attached to internal combustion engines, manufacturers are looking into incorporating e-fuels to satisfy this demand. Another potential approach is to develop a range of electric vehicles that can compete with the current cost of commercial internal combustion engines. 

Currently, electric vehicles are often viewed as luxury items, making them less accessible to the average consumer. While there is considerable optimism about the future of electric vehicles, consumers are unlikely to fully embrace them until they become more affordable. Additionally, the development of charging networks is essential for widespread adoption. 

Currently, most electric vehicle sales are concentrated in Europe, Asia, and North America, leaving regions like the global South lacking the necessary infrastructure to support electric vehicles.   Volkswagen’s decision to allocate part of its electric vehicle budget to internal combustion engines reflects the slower-than-expected consumer shift toward electric options.

However, automakers must explore innovative sustainability solutions beyond just electric vehicles and develop comprehensive strategies that will encourage consumer confidence in making the transition.

By Naila Huseynova