Volkswagen (VWAGY -0.15%) was the second-largest carmaker by volume in the world last year. The established German automaker, like its peers, realizes that the future of transport is electric. Seeing the writing on the wall, Volkswagen is investing heavily toward electrification.
Let's discuss if the company can succeed in its ambition of becoming a leading electric vehicle (EV) manufacturer by 2025.
Volkswagen's 2025 target
Of the 8.9 million vehicles that Volkswagen sold in 2021, 5.1% were battery electric vehicles (BEVs). That was roughly 452,900 BEVs. For perspective, Tesla sold around 936,000 vehicles last year.
Volkswagen has set a target of around 20% of its vehicle sales to be electric by 2025.
Though Volkswagen's deliveries were hit by supply chain issues last year, the company delivered 9.3 million vehicles in 2020 and nearly 11 million in 2019. So, its average delivery for the last three years was around 9.7 million vehicles. Assuming no growth in total vehicle deliveries, a 20% share based on a three-year average delivery would still be 1.9 million BEVs by 2025. That represents a fourfold increase from Volkswagen's 2021 BEV deliveries.
Further, by 2030, the company aims to increase BEV sales to half of its total sales. In addition to the European market, Volkswagen expects a chunk of this growth to come from China. Volkswagen's ID.4 and ID.5 are among its top-selling BEV models. The automaker plans to continue launching new electric models in the coming years.
Volkswagen is planning to make massive capital and research and development (R&D) investments to achieve its targets.
Huge EV investments
Volkswagen does medium-term budget planning through its planning rounds. In its latest round, PR70, the company earmarked 89 billion euros for electrification efforts.
A third of this amount, or 52 billion euros, is expected to be spent solely on BEVs and electrification. Around 8 billion euros are dedicated to hybrid powertrains, and roughly 30 billion euros are allocated for the development of software and digital technology.
Volkswagen has raised the expected R&D and capital investments relating to BEVs and electrification to 52 billion euros, up from 35 billion euros earmarked in its previous planning round, PR69.
The automaker expects that these investments will help it to achieve a capacity of 3.5 million BEV units by 2026.
A top EV stock
An established brand name gives Volkswagen an edge over newer competitors in the EV space. If Volkswagen can deliver quality EVs while keeping costs in check, demand may not be a constraint in its growth.
With the kind of effort that the company is putting toward electrification, it should be able to transform itself into a leading EV maker in some years. Overall, Volkswagen stock provides an attractive way to invest in the EV boom.