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VW to boost ownership of software production, expand team to 10,000 developers in digital drive

"Profit pools will shift from conventional cars first into EVs and then radically into software."

Germany's VW plans to grow its software operations team to 10,000, making it one of Europe's largest technology companies, as part of a sweeping new strategy that will see it boost its share of in-house car software development from a current 10% to 60% by 2025 and monetise in-car digital offerings.

The company in 2018 announced that its in-car “infotainment” systems would all be built on Microsoft systems, with five million+ new VW brand vehicles per year to be connected to Microsoft’s Azure cloud platform from 2020 onwards, but with margins tightening, VW appears keen to have improved software autonomy,

VW revealed the plans in its 2020 earnings call this week, saying that it will pilot a subscription-based model for digital services, including navigation, in its new ID.3 vehicle in six German cities.*

VW Group chairman Herbert Diess told investors on an earnings call: "In terms of digitalisation, software, I think we have laid very important groundwork to become a software-enabled car company. Software work is really gaining shape.  Within two life cycles. Gentlemen, the car industry will change dramatically, radically. Profit pools will shift from conventional cars first into EVs and then radically into software."

New CFO Dr Arno Antlitz added in a Q&A that VW would be investing €2 billion to €2.5 billion annually, describing "car software" as "pretty much a main driver in our R&D section."

"I have two clear strategic goals as CFO" he noted. "First, to financially steer the transformation. This includes allocation and shifting of resources and capital towards electrification, digitalization and mobility services. Our second goal is to safeguard and further strengthen our financial foundation... We are going to develop a leading automotive software stack and we will continue to invest in autonomous driving and mobility services. During this transition, our traditional business will help to generate the profits and cash to do so."

Among other highlights on the call: VW planning to launch its own digital marketplace for stock vehicles and used cars as it aims to trim dealership costs, and ongoing operating impact of current undersupply of semiconductors -- an issue rife across the automotive sector.

The German automotive giant posted €222.9 billion in revenues in 2020, down 11.8% year-on-year. Profits were €9.7 billion, down 43%.

The Stack remains unconvinced that customers will be happy paying extra for navigation, quality audio or any other services after the significant outlay for a new car: disagree? Get in touch.