How Audi is financing the future

Audi has set itself ambitious target returns for the coming years. How does the company intend to achieve these? With a clear focus on profitable electric mobility, digitalization and by making smart use of the available Group synergies.

12/08/2020 Reading Time: 4 min

Talking Sustainable Business – Key Facts

  • Business performance in 2nd half of 2020 allows optimistic forecast in a challenging environment
  • Audi championing a product initiative with clear focus on electric mobility
  • 5-year plan envisages continuing high investment budget of 35 billion euros; focus on future topics: just under 17 billion euros for electric mobility, hybridization and digitalization

Audi Q4 e-tron concept

Optimistic forecast for 2020 in a challenging environment

After eleven challenging months, Audi has managed to cancel out the pandemic-related losses of the first half thanks to a strong performance and cumulatively achieved break-even in the third quarter. For the fourth quarter, the company anticipates a business performance approaching the prior-year level, depending on the course of the pandemic in the remaining weeks of the year. Its result for 2020 should therefore be clearly positive, but well below the figure for the previous year. As matters stand, net cash flow is on track to finish the fiscal year up on the previous year. This will pave the way for continued investment in future technologies.

Electric mobility and digital­ization as major investment priorities

  

Audi aims to play a key role in driving the transformation of the automotive industry, which will include protecting the environment and resources. For the next five years, the company has therefore identified which mainstays will preserve its sustainability and has approved an investment budget amounting to 35 billion euros. It plans to devote almost fifty percent of the total amount to future technologies.

As such, Audi aims to create an emotional product portfolio that prioritizes customer requirements for individual, sustainable and fully connected mobility and generates high brand loyalty and price acceptance over the long term.

“There is a clear message in our investment planning: We are uncompromising when it comes to product substance and are definitely prioritizing upfront spending on electric mobility and software development.”

–  Markus Duesmann, Chairman of the Board of Management of AUDI

Electrification is not a gamble

At Audi, electrification is a major component of its strategy. It is therefore channeling some 15 billion of the total amount into implementing Roadmap E, with a broad-based product initiative revolving around fully and part-electric models. In specific, it will spend around ten billion on electric mobility and about five billion on hybridization.

Audi is investing 35 billion euros. A large share is being allocated to electrification.

Audi is investing 35 billion euros. A large share is being allocated to electrification.

Electrification in total

15

billion euros

of which electric mobility

~ 10

billion euros

of which hybridization

~ 5

billion euros

Electric portfolio by 2025

A vital factor in leveraging long-term success: a competitive portfolio. The first fully electric models were the Audi e-tron, e-tron Sportback and Q2 L e-tron. Audi’s first series-production model, the Audi e-tron, has already emerged as the world market leader in its segment. With the e-tron GT, the Q4 e-tron and the Q4 Sportback e-tron, Audi is looking toward another electrifying year in 2021 in both senses of the word. The consistent expansion of the electric fleet features large in the long-term product timetable up until 2025. Each one of these vehicles must contribute to profit. That is the only way Audi will succeed in scaling up electric mobility profitably.

Group synergies as the key to success

  

This is another example of the strategic benefits of collaboration at Group level. Developing and manufacturing electric vehicles using joint platforms with Porsche (PPE) and Volkswagen (MEB) cuts development costs and boosts the efficiency of the portfolio over the long term. Meanwhile Audi can prioritize brand-defining features of design and user experience. This brings fully electric vehicles closer to the profitability level of ICE models in the same segment.

“A systematic focus on Group synergies for these core future topics is a crucial key to success.”

– Markus Duesmann, Chairman of the Board of Management of AUDI

Digitalization and Car.Software organization

  

Digitalization is another area in which Audi benefits from collaboration across the Group and is now able to exploit this competitive advantage even more effectively. Audi CEO Markus Duesmann is taking over as Supervisory Board Chairman of the Car.Software organization (CSO), which is bringing together and building on the software expertise of the Group brands. The CSO is now developing a uniform operating system that covers the basic functions of all Group vehicles. Its tasks also include the further development of functions for automated driving.

Achieving this goal will be challenging: It will involve bringing together new structures and expertise under one roof so that competitive digital and software functions can ultimately produce a uniform software architecture. The required competences in software as a brand-defining area will be built up quickly. The in-house content in the Group’s software development is to rise to 60 percent by 2025. The plans envisage using the new operating system for the first time in an Audi model in 2024 – developed by the high-tech project “Artemis.”

Ongoing implementation of Audi Transformation Plan and Audi.Zukunft

Thanks to an optimization of the product portfolio that will create a leaner and more efficient setup, the reduced complexity of internal processes and improvements to fixed costs, the Audi brand is financially robust. Substantial efficiencies are being realized through the Audi Transformation Plan (ATP) and the Audi.Zukunft fundamental agreement. The ATP alone has unlocked over 6.5 billion euros since the program’s launch three years ago. Despite the challenging environment created by the coronavirus pandemic this year, AUDI AG still has its sights firmly set on achieving a cumulative effect of some 15 billion euros with the program by 2022. The Audi.Zukunft agreement in addition provides the basis for a strong brand position for AUDI AG, secure jobs and profitable sites. The upfront spending plans will ensure that the German sites, too, remain thoroughly competitive and sustainable.

Investment in the future

 

In an economically challenging environment, Audi has set itself an ambitious target return of nine to eleven percent. In spite of – or specifically because of – the high upfront spending.

“We are convinced Audi has what it takes to emerge from the transformation process stronger. It all revolves around sustainable financial governance of the company – without compromises in terms of investments in electric mobility and digitalization.”

–  Dr. Arno Antlitz, Member of the Board of Management of AUDI AG for Finance and Legal Affairs

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