Volkswagen Delays All-Electric Phaeton But Boosts Electric Drive R&D

In continued efforts to re-stabilize, Volkswagen AG is sharply cutting capital expenditures and non-essential projects, shifting extra funds to help support electric drive development.

“We will continue to act with determination to overcome the crisis with good solutions for our customers and also in investigating this issue with dedication,” said Matthias Müller, CEO of Volkswagen AG, of the company’s recent scandal with its diesel engines. “At the same time we are refocusing Volkswagen so that the group can remain successful in this fundamentally changed world of automotive engineering. This is shown by our adjusted investment program which the supervisory board has confirmed today for 2016.”

As part of its refocused priorities, Volkswagen will spend an extra 100 million euros ($106.1 million) next year on the development of alternative drive technologies.

“We are not going to make the mistake of economizing on our future. For this reason we are planning to further increase spending on the development of e-mobility and digitalization,” said Müller. Volkswagen also noted the program’s “core focus will be on rapidly developing electric drive systems for the Volkswagen Passenger Cars, Audi and Porsche brands.”

But VW’s added investment for electric drives will not be used to expedite the launch of its upcoming all-electric Phaeton. The gasoline-only luxury Phaeton (pictured above) is currently sold in global markets, though it was pulled from the U.S. after its $70,000-something price tag and competition from the Audi A8 stifled sales. Instead of a luxury battery electric, Volkswagen prefers to focus on plug-in hybrids that can sell in higher volumes.

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“Whatever is not absolutely essential will be cancelled or postponed,” Müller said. “The next generation of the Phaeton, which will be launched as a pure electric vehicle, will be postponed.”

These cuts are part of Volkswagen’s efforts to “strictly prioritize all investments and expenditures,” and include reducing capital expenditures next year by $1 billion euros ($12.7 billion).

“The aim is for planned investments in property, plant and equipment, investment property and intangible assets, excluding capitalized development costs (capex), to be capped at approximately 12 billion euros next year,” said Volkswagen.

About half of this will be spent on VW’s Germany locations. New models, including the next generation Golf and Audi Q5, are also included in the 12 billion euro investment, as is a new plant in Poland. Plans to build a new design center in Wolfsburg will be delayed, however. Volkswagen didn’t elaborate specifically if it will be cutting jobs as well, though the company did add that further cost reductions may be on their way.

“We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk”, Müller said. “Together with the works council representatives we will make every effort to keep our core workforce on board.”