Volkswagen (VWAGY Quick QuoteVWAGY - Free Report) recently issued an update on its long-term strategy for 2030 under the name “New Auto”.

The heart of the strategy is the gradual phasing out of the internal combustion engine (ICE) and the transition to electric mobility. Along with this, the German automaker will focus on exponential growth in profits from software, autonomous vehicles (AVs) and even ridesharing.

Key Takeaways of the Presentation

Outlining the company’s strategy, chief executive officer Herbert Diess stressed on a top-to-bottom transformation spanning from manufacturing to revenue sources. Diess emphasized that until 2030, the company will focus on deriving income not only from electric vehicle (EV) sales, but also from software, autonomous driving and even ridesharing.

With personal mobility continuing to be the most important means of transportation until 2030, Volkswagen plans to beef up its software, mobility as a service and battery technology to have an edge over its peers, as other automakers also rev up their services to catch up on the race to lead the automotive sector.  

In fact, this European auto biggie also said it expects half of its global vehicle sales to consist of battery-powered EVs by 2030, setting ambitious goals in an era of green transportation.  Moreover, the company projects 100% of its new vehicles in major markets to be carbon-free vehicles by 2040. These objectives are part of Volkswagen’s broader goal to be fully carbon neutral by 2050.

Amid the tightening emission regulations, the demand for ICE-powered vehicles is declining, putting ICE margins under immense pressure. To cope up with this changing scenario, Volkswagen plans to slash its number of ICE models by 60% in Europe by 2030. The company also plans to attain cost parity between ICE and battery-powered vehicles, taking advantage of economies of scale and reduced factory costs.

Volkswagen also updated on its plans to accelerate the development of battery production capacities in Europe, in order to meet the surging demand for battery cells. The automaker plans to have six battery cell production gigafactories operating in continent by 2030, which are to produce the unit battery cells for its own use. The first gigafactory will be operated by partner Northvolt in Skelleftea, Sweden, and is expected to begin production in 2023.

Contrary to the announcement made in March at the Power Day event, Volkswagen noted that it will not operate the second gigafactory in Salzgitter in Germany alone. For this factory, the automaker has partnered with Chinese cell manufacturer — Gotion High-Tech — with a vision to begin production in 2025. As for the third factory, previously planned for southern Europe, the latest information confirms Volkswagen is looking at Spain as the location for building it.

Apart from this, the firm fleshed out plans on ramping up its software platform to help boost the bottom line as it expects software to be another revenue stream by 2025. Further, the company predicts that by 2030, the software business will be almost as big as that of selling EVs, and similar in size to the revenue share of electric cars or internal combustion cars.

Volkswagen also pointed out that it is developing three software platforms, with the goal to develop one software platform that can be used across all Volkswagen Group cars by 2025, with the aim of having up to 40 million vehicles estimated to be operating on the company’s software platforms by end of the decade.
    
Volkswagen’s in-house software arm CARIAD will pioneer this transformation by developing software platforms, which will offer various features, such as a unified infotainment system, thus tapping on this additional revenue pool and generate as much as 1.2 trillion euros ($1.4 trillion) in revenues by 2030, via subscriptions and other sales.

Volkswagen has set aside 73 billion euros ($86.4 billion) for the development of future technologies by 2025, accounting for 50% of the company’s total investments.

Volkswagen wants to capture a niche market in the autonomous driving sector, with personal vehicles being equipped with level 4 autonomous driving by 2025. In fact, shared mobility vehicles, like shuttles or taxis, will also be operated by the company, and run on the technology developed by the self-driving vehicle technology company Argo AI.

Volkswagen is optimistic for a brighter future ahead. The company also raised its profit margin forecast for 2025 to 8-9%, from the initial 7-8%.

Volkswagen’s strategy day presentation, which comes ahead of the environmental policies to be announced by the European Union, tries to mimic the success of the company’s Power Day event which took place in March.

The latest presentation showcases that this Zacks Rank #3 (Hold) company is betting big on an electric future and aspires to replace the fat profits generated from ICE cars with those from EVs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amid the heightening climate-change concerns, automakers across the globe have set an array of goals for an electric future. Last week, Stellantis (STLA Quick QuoteSTLA - Free Report) said it was targeting for more than 70% of sales in Europe and more than 40% in the United States to be low-emission vehicles by 2030.

Auto biggies like General Motors (GM Quick QuoteGM - Free Report) and Ford (F Quick QuoteF - Free Report) are also committed to the goal of providing carbon-free transportation in the upcoming years and are boosting their electrification efforts to attain the target. While General Motors has committed to invest $35 billion to EVs and autonomous vehicles by the end of 2025, Ford plans to invest more than $30 billion by 2025 for electrification of its commercial and retail fleet.