How Audi is making electric mobility profitable

consistently electric: Dr. Stefan Ambrosy is responsible for the electric product line at Audi. Together with Alexander Seitz, CFO in the 2019 fiscal year, he has placed the focus on securing premium returns with electric models as well. A discussion about “Vorsprung durch Technik” in the age of electric mobility.

03/19/2020 Copy: Dorothea Joos – Photos: AUDI AG, Fritz Beck, Julian Baumann – Rendering: Vinzent Britz Talking Business Reading Time: 6 min

Talking Business – Key Facts

  • The Audi production target for 2025: around 40 percent electric models
  • Comprehensive e-mobility roadmap launched with the Audi e-tron; numerous other models to follow.
  • Investments in e-mobility: EUR 12 billion up to 2024
  • Audi is making e-mobility profitable by optimizing costs and revenues and wants to achieve premium returns between 9 and 11 percent in the medium term.

“We are planning to launch around 30 electric models on the market by 2025.”

Dr. Stefan Ambrosy, Vice President Product Line BEV

What does “consistently electric” mean for you?
Ambrosy:
Audi is concentrating its resources on e-mobility. By 2025, we want plug-in hybrid and all-electric models to make up around 40 percent of our production volume. We have a clear roadmap for this: We are planning to launch around 30 electric models on the market by 2025. The Audi e-tron, e-tron Sportback and Q2 L e-tron were the first of the fully electric models. In total, we will be investing EUR 12 billion in e-mobility by 2024.

High investments and material costs. At the moment it seems difficult for electric cars to make a positive contribution to profit. Will this have an impact on Audi’s returns in the future?
Seitz:
Electric mobility is not an excuse for declines in our operating return on sales. Audi will continue to target a premium return between 9 and 11 percent in the future. With electric cars, we are making our contribution to sustainable mobility. Battery drive systems are the best solution for reducing CO₂ quickly, sustainably and efficiently. So the question for Audi is not whether to offer electric cars. The key issue is: How do we make them profitable?

How is Audi addressing this issue?
Ambrosy
: Instead of looking at profitability at the level of individual vehicles only, we consider it holistically. We refer to the entire electric portfolio, the vehicles’ complete life cycle as well as all aspects of use, such as charging for example. To do so, Audi utilizes a number of levers on both the cost and revenue sides.

Dr. Stefan Ambrosy, Vice President Product Line BEV
Dr. Stefan Ambrosy, Vice President Product Line BEV
Audi wants to achieve premium returns in the medium term, in the electric age as well.

Dr. Stefan Ambrosy, Vice President Product Line BEV

Focus on battery costs

At an average of 40 percent, the battery accounts for a large share of the costs of an electric car. How does Audi intend to reduce these costs?
Seitz:
Battery costs are largely dependent on the price of raw materials. These days, raw materials make up more than a third of the cost of battery cells. Through the Volkswagen Group, Audi is able to enjoy long-term price stability and economies of scale when procuring materials in this volatile market. Naturally it would be even better if we could do without expensive raw materials. That’s why we will be halving the amount of cobalt in our vehicles’ batteries over the next two years, among other things.

What other technical possibilities are there?
Ambrosy:
We’re constantly optimizing the overall technical system. Here we consider the battery in conjunction with other criteria which sometimes have an effect on each other, such as energy density, the vehicle’s traction consumption and charging performance. As early as during the next three years, we want to reduce the costs of the battery system by more than 15 percent and, at the same time, increase the range by over 30 percent. Widespread fast charging will take us another important step forward. If customers can charge their electric car in just a few minutes, then we can start installing smaller and therefore less expensive batteries.

“consistently electric” in figures

“consistently electric” in figures

Vorsprung durch Technik

> 15 %

lower battery costs in the next three years

Investments in the future

12

billion euros

to be channeled into electric mobility by 2024

Model initiative

~ 30

electric models on the market by 2025

Synergies as a competitive advantage

What role do Group synergies play in electric mobility?
Ambrosy:
We use the platform strategy within the Group. In other words, a common technical base that provides the basis for different products. Together with Porsche, Audi is developing Premium Platform Electric (PPE) for the B, C and D segments. The two companies are sharing the high development costs and investments and allocating them to a large number of vehicles.

Are there concrete examples?
Ambrosy:
For our electric SUV models in the B segment, we achieve a carry-over parts ratio of almost 100 percent for jointly used modules such as battery and electric axle drive. These are modules that don’t directly influence our customers’ purchasing decisions. Most of them aren’t even visible to the customer. But the shared use of modules saves immense costs. Audi is the only premium manufacturer in the competition that can exploit these kinds of synergies through cooperation within the Group. This allows us to focus on features that differentiate us from the competition – such as design, quality and user experience – and therefore continue to offer our customers premium products.

What’s the situation regarding joint production?
Seitz:
Plants working at full capacity are key to producing profitable electric cars. For this reason, the Group will be gearing its production lines more to platforms than to brands in the future. That will enable us to simplify production and logistics as well as our collaboration with our suppliers and respond more effectively to fluctuations in demand. The Volkswagen plant in Zwickau is already set up as a multibrand plant. In the future, it will produce electric cars for Volkswagen, Audi and Seat based on the modular electric drive matrix.

Developing what customers buy

What potential do you see for reducing complexity?
Ambrosy:
We still have some maneuvering room here – both in our vehicles and our portfolio. We have to prioritize and make bold product decisions. At the same time, every product has to contribute to the bottom line. That’s the only way we can scale up electric mobility profitably.

Can you give an example?
Ambrosy:
Electric vehicles have a specific architecture. Their powertrain is particularly compact, which opens up new creative scope in the interior. At the same time, considerable driving performance is achieved. Thanks to these typical characteristics of electric vehicles, we are able to cover the classic segments with fewer models. Customer studies underline this. And the savings that can be made for each model amount to a high three-digit million figure for costs alone.

How can Audi reduce equipment variance and still offer attractive models?
Ambrosy:
We develop only what the customer wants and what differentiates us from the competition. This enables us to focus our resources on realizing innovations such as the virtual exterior mirrors. At the same time, in the case of electric models, we no longer offer our customers countless individual options to choose from. Instead, we concentrate on attractive equipment packages. In the Audi Q4 e-tron, for example, we will reduce almost 60 individual options by offering around 20 equipment packages. This means that we are reducing complexity by 35 percent compared with an equivalent model with a combustion engine. And it enables our customers to put together highly attractive vehicles in the configurator with just a few clicks.

Alexander Seitz
Alexander Seitz, Board Member for Finance, China and Legal Affairs in the 2019 fiscal year
With electric cars, we are making our contribution to sustainable mobility.

Alexander Seitz, Board Member for Finance, China and Legal Affairs in the 2019 fiscal year

New revenue opportunities thanks to e-mobility

Cutting costs, exploiting synergies, minimizing complexity – that is how Audi reduces expenses. How can e-mobility increase revenues?
Ambrosy:
With electric cars we are entering into a new world that offers completely new possibilities – in the area of functions on demand, for example. On models with electric drive it is conceivable in the future that customers could book more performance temporarily, for instance. New business models like this should be making a significant contribution to Audi Group revenue by 2025. And we are also discussing other approaches, such as battery leasing and recycling.

Electric cars are still considered a bet on the future. What if customer demand falls short of expectations?
Seitz:
Electrification isn’t a bet. At Audi, it’s part of the strategy and is already being implemented. We thought very carefully about which model lines to electrify first. We’re focusing on high-volume, high-yield SUVs and the C/D segment. These models are very popular with our customers. And we’re complementing our electric initiative with tailor-made marketing activities, thus increasing the acceptance and attractiveness of our electric models. Here as well, we are being consistent and focusing on high-volume, high-revenue electric markets such as China, the United States and Northern Europe. Currently, around half of our marketing budget is going into the subject of electric mobility.

Ambrosy: We will show the customer the advantages of e-mobility and make them tangible. Driving with zero local emissions, powerful starting performance and acceleration, lower overall operating costs – there are plenty of arguments for buying an electric car. But the most powerful and most convincing argument, especially in the premium segment, is design. Audi has always been known for its forwardlooking design. And we have anchored this in our strategic vision: Unleash the beauty of sustainable mobility. Electric models offer even more creative scope and, thanks to their proportions, look particularly attractive.

Audi has already taken important steps toward profitable e-mobility. When will the first successes be visible outside the company?
Seitz:
Let me be realistic: Electric cars still won’t contribute the lion’s share of Audi’s profits in the next five years. But electric mobility will be profitable for Audi on a full-cost basis. We’re actively utilizing all of the important levers – in our projects, in the divisions and together with our sister brands in the Group. It’s a steep learning curve, and the electrical architectures to come will allow us to continually increase our volume of electric models as well as revenue and returns. With emotional cars and consistent cost and revenue optimization, Audi wants to achieve premium returns in the medium term, in the electric age as well.

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