Volkswagen's (VLKAF) vroom might be quieter in coming years, both in terms of volume and environmental impact.
The engine noise cut is expected due to the company's proclamation that it will cut production of its traditional combustion engine autos by 2026.
"Our colleagues are working on the last platform for vehicles that aren't CO2 neutral," Volkswagen Head of Strategy Michael Jost told the Handelsblatt automotive summit conference at Volkswagen's headquarters in Wolfsburg, Germany on Wednesday. "We're gradually fading out combustion engines to the absolute minimum."
Instead, the company will focus on electric cars.
The move would have the upside of completely eliminating concerns over the company's emissions standards that came under intense scrutiny following "Dieselgate" just a few years ago and has begun to rear its head again on Wednesday.
The fine in 2017 cost a total of €27 billion euros, or about 15.5% of its last reported quarterly profit.
Further, given the focus of younger generations on green energy and investment as well as the meteoric rise of Tesla (TSLA) recent years, the shift may be a sign of the times. that's not to mention riots provoked by the Paris climate accord measures that have increased fuel costs in France.
A video of the destroyed streets of Iraq after ISIS.
Actually, it's Paris.pic.twitter.com/bAARzCLfof— Imam Tawhidi (@Imamofpeace) December 2, 2018
If the company is reading the signs correctly, such a shift would give the company first mover advantage.
"We agree with VW's view that it will be the most profitable maker of electric cars due to economies of scale," Morgan Stanley analyst Harald Hendrikse said. "No other OEM is attempting anything of the scale that VW is doing, and we applaud this direction - we see VW having a two to three year lead on its global competitors in this area by 2025, even if this initially depresses EBIT margins."
To be sure, such a move is surprising the market, as even the long-dated timeline is drawing concern due to the potential cost of such a dramatic shift for the company that has posted solid sales numbers with its traditional vehicle offerings across Audi, Porsche, Lamborghini, Bentley, Bugatti, Ducati, and Škoda brands among others.
The already ballooning price tag that, along with autonomous driving and other forward-looking endeavors, has increased from a projected €34 billion five-year budget to €44bn to be spent by 2023.
Analysts have been skeptical about the company's claims that electric will not impact margins as well, due to their high cost of production relative to traditional autos and the necessity to remake plants in Germany and the Czech Republic to fit the new company direction.
"The move to electric is expensive," Hendrikse acknowledged. "We are somewhat doubtful whether a positive margin can be achieved [for the first generation], given continuing high battery costs."
The company has countered these concerns by outlining its own cost-cutting efforts, that will help pay for the cost-intensive efforts, largely in productivity improvements.
With the market closed on Wednesday, there is little information to gauge a market reaction, so for now investors will need to remain idle to see if the stock charges up or combusts.