Volkswagen Lost the EV Revolution and Is Bracing for Another Defeat in the Software Arena

Last year, we saw the first signs that the EV revolution might not go as planned for many traditional carmakers. Many blamed customers losing interest in electric vehicles for their disappointing performance, even though the EV market is still growing while sales of combustion vehicles continued to trend lower. Some manufacturers continued to expand their EV market share, but most legacy carmakers were forced to admit that their electric cars failed to convince enough buyers.

In the US market, Ford and GM were among the most bullish about their chances of surpassing Tesla as the EV market leader. GM's CEO Mary Barra repeated this mantra for so long that it became the laugh of the town until she finally admitted that topping Tesla is nearly impossible at this stage. Stellantis, on the other hand, has followed its European instincts and kept as reluctant as possible to launch any electric vehicle.

The EV revolution hit Volkswagen the most

However, it's Volkswagen that has suffered the most from failing to execute its EV strategy. The new management under Oliver Blume has reverted the ambitious EV plans laid out by Herbert Diess, its former CEO. Oliver Diess's critics argued that transitioning to electric vehicles would need more time. Eventually, the disagreements cost Diess his job, although an important contributor was the ongoing problems at Volkswagen's software division Cariad.

His successor, Oliver Blume, was chosen specifically for his cautious approach to electrification. Blume's first actions as CEO were to cancel or delay the most important projects related to electric vehicles, including a new plant in Wolfsburg where the next-generation EVs were to be built. Instead of switching to new EV architectures, Blume wanted the aging MEB platform to be used for new models, including the ID.7 flagship. The MEB was designed as a stop-gap until the more advanced SSP platform was ready for production, but it's still widely used today.

To be fair, the fact that Volkswagen's electric vehicles are not selling and the company has no compelling EV roadmap is the result, not the cause of the company's problems. The real cause is not recognizing that the automotive pool that was once populated with tame fish is now attacked by sharks and piranha. Legacy carmakers were used to seeing things move slowly, even when regulators and the public wanted them to act fast. However, with the EV revolution, Tesla and new EV makers are pushing the industry too fast for traditional companies to follow.

The roof is on fire

After wasting precious time despite multiple warnings, Volkswagen recognized last year that "the roof is on fire." Its electric vehicles were not selling, prompting Volkswagen to order production stops and, eventually, cut shifts at its main plants in Wolfsburg, Zwickau, and Emden. After stalling EV plans for so long, Volkswagen couldn't be happier that other carmakers are also considering scaling back their EV efforts.

Ford was among the first to announce cutting production forecasts for its most popular electric vehicles, the Mustang Mach-E and F-150 Lightning. GM continues to announce new EV models but with almost no volumes to make them count. At the same time, Stellantis partnered with Leapmotor to produce electric vehicles in China for the European market.

In Europe, Mercedes-Benz recently announced scrapping plans for the future MB.EA architecture destined for larger models. Instead, Mercedes-Benz will improve the existing EVA2 architecture and launch more plug-in hybrid models. BMW, further ahead in electrification than other German companies, is trying to delay the EU's plans to ban new ICE vehicle sales by 2035.

Volkswagen is trying a bit of everything in a desperate move to delay the inevitable. In April, it announced a new Chinese strategy to address the shrinking market share. Volkswagen will not only leverage the partnership with the EV startup Xpeng to bring new ID. models to the market, but will also launch a new brand in China called ID. UX. In the meantime, it also doubles down on plug-in hybrids, following Mercedes-Benz in this regard. Finally, Volkswagen is standing beside BMW in asking European regulators for leniency.

The elephant in the room: Volkswagen software subsidiary Cariad

However, another area might cause the most trouble, regardless of what type of vehicles Volkswagen will be making in the future. Electric vehicles are just one part of the problem, with software-defined vehicles being another. This is another area where Tesla showed the way and traditional carmakers failed to follow. However, none has failed as monumentally as Volkswagen and its software subsidiary Cariad.

Cariad problems eventually ended Herbert Diess's career, as I've mentioned earlier, and caused years of delays to new EV models and platforms across Volkswagen Group's brands. Besides the new Volkswagen flagship models, software issues delayed the Porsche Macan EV and Audi Q6 e-tron launch. Audi, especially, has been hit the hardest, as it has idled a new factory in China while waiting for the software to be fixed.

At the end of April, Volkswagen Group's (and Porsche's) CEO Oliver Blume visited the Beijing Auto Show with Audi CEO Gernot Doellner. They were given the chance to test the electric Porsche Macan and Audi Q6, respectively, and compare them with the Chinese competition. A report by Manager Magazine [paywall] described Blume's reaction to the Audi Q6 e-tron as "a catastrophe." Meanwhile, Porsche switched to using different software to distance itself from Cariad.

The Audi Q6's software was the biggest cause of reflection for Blume. According to some test participants, the car displays were not always working, reflecting the software issues that have plagued the Group's vehicles for years. Just like the ID.3 was produced with incomplete software in 2020, the Audi Q6L e-tron assembled at Audi's new factory in Changchun will also be parked on overflow lots until the software issues are ironed out.