Procurement and Inventory Management

Volkswagen Group
A.G.
A Comprehensive overview about business and
supply chain practices of Volkswagen

Group Members:
Muhammad Ali Ehsan
Muhammad Usman Ghani
Nusrat Aslam
 Table of Content

Abbreviations…………………………………………………………………….. 04

Executive Summary ……………………………………………………………. 05

Introduction ………………………………………………………………………. 06

Volkswagen Values, Mission & Vision …………………………………….. 08

Strategic Management Placement & Goals………………………………. 12

Volkswagen Business Model 2.0……………………………………………. 16

Trends of Industry and Markets………………………………………………. 18

Procurement Strategies & Practices………………………………………. 24

Production Plan…………………………………………………………………. 31

Marketing and Business Strategy …………………………………………. 38

PESTLE Analysis ……………………………………………………………….. 40

SWOT Analysis …………………………………………………………………. 43

Five Force Analysis ……………………………………………………………. 46

Value Chain and VRIO Analysis ……………………………………………. 48

Suggestions ………………………………………………………………………. 51

Conclusion & Outlook …………………………………………………………. 54

Reference …………………………………………………………………………. 56
 Abbreviations

• VW – Volkswagen
• AG - Aktiengesellschaft (a German term for a public limited company)
• SSP - Scalable Systems Platform
• ICV: Intelligent Connected Vehicles
• SUV: Sport Utility Vehicle
• EV: Electric Vehicle
• CFA: Chartered Financial Analyst
• OEM: Original Equipment Manufacturer
• IPP: Independent Power Producer
• R&D: Research and Development
• MEB: Modular Electric Drive Toolkit
• SSP: Scalable Systems Platform
• S-rating: Sustainability Rating
• MLB - Modular Longitudinal Toolkit
• MOB - Modular Transversal Toolkit
• MEB - Modular Electric Drive Toolkit
• PPE - Premium Platform Electric
• DPP - Digital Production Platform
• GenAI - Generative Artificial Intelligence
• ECMS - Environmental Compliance Management System
• KPI - Key Performance Indicator
• DKI - Decarbonization Index
• LNG - Liquefied Natural Gas
• PESTLE - Political, Economic, Social, Technological, Legal, and Environmental
 Executive Summary

This report evaluates Volkswagen’s business and procurement practices, focusing on

supply chain management. Volkswagen employs a centralized procurement system that
integrates advanced technologies to enhance efficiency and cost-effectiveness. The
company prioritizes strategic sourcing and builds strong supplier partnerships while
adhering to high sustainability and ethical standards. Volkswagen’s approach ensures
operational excellence, supports its competitive edge, and aligns with its corporate social
responsibility goals, positioning it as a leader in the automotive industry.
Volkswagen Group
Volkswagen Group is one of the biggest vehicle manufacturers in the world, with German origins
around the year 1930, it has its current head office in Wolfsburg, Germany. The group is composed
by twelve highly recognized brands in the automobile sector: Volkswagen, Audi, SEAT, Sköda,
Bentley, Bugatti, Porsche, Ducati, Scania, MAN and Volkswagen commercial vehicles. However,
“each brand has its own character and operates as an independent entity on the market,
providing costumers, overall, with a product spectrum that ranges from motorcycles to low-
consumption small cars and luxury vehicles, including pick-ups, buses and heavy trucks”
(Volkswagen AG, 2014).

Currently, VW Group owns 119 plant factories worldwide, distributed among 20 European
countries and 11 countries spread around America, Asia and Africa, with a total production of
approximately ten million vehicles, from 335 different models, which are commercialized in 153
countries (Volkswagen AG, 2015).VW Group aims to offer attractive, safe and environmentally
sound vehicles which can compete in an increasingly tough market and set world standards in
their respective class. Its strategy to be the most innovative high volume brand in the world is
grounded on four fundamental points: being a top employer, reaching top values in consumer
satisfaction and quality, obtaining 21% of return on investment and, lastly, attaining a sales
volume of over ten million vehicles per year (Volkswagen AE, 2015).

Volkswagen History
Volkswagen is operating a business of German automaker founded in 4 January 1937 by the
German Labour Front which is headquartering located in Wolfsburg, Germany. In other words,
Volkswagen is translated as “People Automobile” in German

In year of 1937, the company is set up by the Nazi trades union organization, the Deutsche
Arbeitsfront. During that era, there are only wealthy Germans owned cars because majority of
the citizen is not affording to own an automobile. For this reason, Volkswagen group aim was to
create a “people’s car”. Subsequently, Hitler decrees that “an automobile should carry two adults
and three children at 100km/h (60mph) and the item should not be luxury items, costing no more
than a motorbike to buy”.

After a year, the company, initially called the Gesellschaft zur Vorbereitung des Deutschen
Volkswagens mbH, is renamed Volkswagenwerk GmbH. Same year, a factory is built for the
company in the new town of KdF-Stadt, now modern-day Wolfsburg. Almost 336,000 people
subscribed to buy the car via a monthly savings plan but by the outbreak of war only a handful of
car is completed and none are delivered to customers. Between the years 1939 to 1945, during
World War II, civilian car production ceases and the firm switches to making vehicles for the
German army, using more than 15,000 slave laborers from nearby concentration camps. It is a
practice that is widespread among German firms during the war. In year 1998, survivors file a
lawsuit against Volkswagen, which sets up a restitution fund.

By the year 1949, Volkswagen passes to German’s Nazi control under manager Heinrich Nordoff.
It becomes an important element of post- war West German regeneration. The state of Lower
Saxony, where Volkswagen has its main factory, takes a 20% voting stake in the firm. As production
increasing dramatically, sales of the Beetle reach one million in year 1955.

In year 1964, Volkswagen buys Auto Union, owners of the historic Audi brand. After 5 year,
Volkswagen buys NSU Motorenwerke, and eventually merges this with Auto Union to create the
modern Audi firm as its luxury vehicle brand. Audi has the technological expertise needed as
demand for Volkswagen’s original air-cooled models goes into reverse. At 1973, with sales of
Beetles declining, Thus, Volkswagen switches to produce a new generation of cars with front-
wheel drive and water-cooled engines such as the Passat, Scirocco, Golf, and Polo.

Volkswagen Group is created as a holding company for the growing car maker in year 1975 to
monopolize the automaker market. At 1982, Volkswagen signs a co-operation agreement with
the Spanish car maker seat. It buys a majority share in 1986 and acquires seat outright in
1990.Next year, Volkswagen signs a co-operation agreement with Czech car maker Skoda, which
then becomes Volkswagen’s fourth brand as it raises its equity share to 60% in 1994 and 70% in
1995.At 1998, Volkswagen embarks on a round of acquisitions of famous names, buying up
Britain’s luxury car maker Bentley, France’s Bugatti and Italy’s sports car maker Lamborghini.

In 2012, Volkswagen’s Audi subsidiary buys the Italian motorbike maker, Ducatti. Same year, years
of wrangling between the two firms and families comes to an end when Volkswagen buys the
remaining half of Porsche’s car making operations. Porsche’s chairman, Wolfgang Porsche, has
ultimately been thwarted by his older cousin, Ferdinand Piech, who is Volkswagen’s chairman.

Next year, Germany wins its court battle with the EU over Volkswagen, after rewriting the
Volkswagen Law. Under this revised law, for important decisions an 80% majority of all
shareholders will be needed. Volkswagen is one of the biggest firms in automotive market in
based on Fortune Global 500 Companies 2014. It has factories in 31 countries, and it is products
are sold in 153 countries across the global market. The company reported revenue around
$197billion and is still recognized as a growing market. In 2015, the Volkswagen has recognized
BMW, Audi and Toyota as their main competitor in global market.

To achieve the economic and ecological of the global automotive industry, Volkswagen set a
mission and four objectives to make Volkswagen the most successful in the world by 2018. To
build a long-term strategic partnership with our customers and assist them by making the right
choices for their needs by minimizing fleet costs and providing world class customer service is the
main mission for Volkswagen. One of the objective is Volkswagen intends to attain long term
relationship with customers through advance innovation and high quality.
Volkswagen Mission & Vision Statements
Mission Statement
Volkswagen focuses on enhancing its environmental practices to implement them better for
consumers and far more exciting for employees. They are also focused on increasing the worth
they provide to their stockholders, associates, and clients. The corporation notes no official
business mission statement, but the Volkswagen Group declares an environmental mission plan.

The Volkswagen Group lacks an official mission statement. The following is the nearest
approximation to a mission statement for the Volkswagen Group:

“The Group’s goal is to offer attractive, safe and environmentally sound vehicles which can
compete in an increasingly tough market and set world standards in their respective class.”

This strategic vision encapsulates everything else the corporation does to progress toward its
vision. Its primary focus is on preserving a level of excellence that surpasses all rivals in all areas.
The following are the critical elements of the statement:

• Exceptional quality
• Surpassing expectations

Volkswagen AG’s mission statement is a customer-oriented stated goal, so the central emphasis
is on the buyer. The first connection concerns customer satisfaction, the second with their varied
needs, and the third with responsibility, morals, and devotion.

They are well cognizant that they do not advertise one-time items but rather perspectives that
last a long life. As a result, every vehicle is committed to providing the best reliability for
unforgettable experiences.

Vision Statement

A corporate vision statement’s objective is to demonstrate a firm’s long-term goals for progress
and expansion. Volkswagen’s vision statement is as follows:

“To make this world a mobile, sustainable place with access to all the citizens.”

This particular emphasis in this statement is to introduce transportation modifications around the
globe through its brands. The following elements are included in the report:

• Global coverage
• Reduce congestion and long-term viability
Through its extension, VW has taken this opportunity to approach people worldwide. These
German devices are now available in almost every part of the world. They are also adapted to
different conditions, allowing VW to fulfill virtualization and supportability requirements
irrespective of where vehicles are used.

VW’s vision statement appears extremely formulaic in contrast to its mission statement and does
not explain its long-term vision. It simply indicates that VW is committed to being a provider of
environmentally-friendly vehicles. Energy efficiency is more than a fad, and in the profession of
transportation, the emphasis is shifting toward cars that use less fuel and are less damaging to
the environment.

Currently, it is unclear precisely what sort of financial future the product desires or where it
intends to relocate to market competition.

Core Values
The Volkswagen Group guarantees that the seven Volkswagen Group Essentials are integrated
into the firm’s framework and serve as pillars of its corporate culture. “Accountability, group work,
a servant’s attitude, and integrity” are among Volkswagen’s basic values. This company’s
prominence demonstrates that it tirelessly provides and fulfills the needs of all of its customers.

This is one of the many practices for which VW is known, along with being a business and potential
due to its guiding principles. Since it evaluates group work and doing the correct thing, the firm
is able to endure both internal and external business challenges.

1. Honesty:
We are truthful and will stand openly if something is flawed.

Honesty is a valuable quality in any individual. Incorporating this as a core value demonstrates
the firm’s sense of morality and humanistic nature. They present to the world that they do only
what is correct, even when no one is looking, implying that they are not scared to speak the reality
and be accurate.

2. Bravery:
We make headway.
They value instilling the current developments, whether in technology, styling, or any other field
and are not afraid to try things with technological breakthroughs in their area. And they do so
bravely, intending to shape and mobilize the world.

3. Pride:
We are pleased with the results of our efforts.

This dignity is not confused with arrogance or haughtiness but instead demonstrates their
conviction in the quality of goods. They advocate for eco-friendly products and are solid and
happy in their job and techniques.

4. Solidarity:
We not me.

Three words are all it requires to nail this significance into the worker’s head. There is no wonder
that Volkswagen regards everything as a single massive entity that functions flawlessly and
without mistakes or comorbidities.

5. Reliability:
We retain our promises.

Our dependability is comparable to their sincerity. We demonstrate that we can be relied on. The
firm intends to fulfill its word and look itself in the mirror.
While the mission and vision statements are like the framework and roof structure, the morals
they combine are the central tenets on which any business exists. A minor interruption or inequity
in either of these outposts can collapse the overall infrastructure.

Similarly, Volkswagen automobiles can now be found worldwide, along with well-known
confidence in their company and the quality they provide. The design is also responsive and
innovative, satisfying the demands of multiple locations and necessitates. Constructing a
corporation is fine, but establishing and maintaining a company over time is a triumph.

Group Structure
The Volkswagen Group consists of two divisions: the Automotive Division and the Financial
Services Division. The Automotive Division comprises the Passenger Cars, Commercial Vehicles
and Power Engineering business areas. Activities of the Automotive Division comprise in
particular the development of vehicles, engines and vehicle software, the production and sale of
passenger cars, light commercial vehicles, trucks, buses and motor-cycles, as well as businesses
for genuine parts, large-bore diesel engines, turbomachinery and propulsion components.
Mobility solutions are gradually being added to the range. The Ducati brand is allocated to the
Audi Brand and thus to the Passenger Cars Business Area. The Financial Services Division’s
activities comprise dealer and customer financing, leasing, direct banking and insurance
activities, fleet management and mobility services.
Volkswagen Strategic Management Goals
In the context of the fast-changing environment and the challenges resulting from it, the Group
Board of Management adopted the Group strategy “NEW AUTO – Mobility for generations to
come” in May 2021 with the approval of the Supervisory Board. The strategy’s focus is the world
of mobility in 2030. As technology advances, the automotive industry is rapidly forging ahead
with its transformation toward e-mobility and digitalization. We therefore expect the market for
electric vehicles to continue to grow in the next few years, meaning that the cost-efficient and
sustainable production of battery systems and the expansion of the charging infrastructure will
be crucial to success.

The shift to connected, intelligent and eventually self-driving vehicles will, however, bring more
wide-reaching changes for the automotive industry. Autonomous driving will change the
customer’s mobility experience forever and lay the ground for new business models. Sources of
revenue will gradually shift and will expand beyond the core product of the automobile.
Increasing software development capabilities in order to excite customers with constantly
improving digital functionality is the prerequisite for this.

In equal measure to technological trends, the global economic and geopolitical environment is
also posing increased challenges for the automotive industry. These include, for example, the
economic influence of the largest mobility market, China, the USA and Europe, and their diverging
development. Sustainability will continue to be a recurring theme in the business world and will
gain further pertinence, driven by the increasingly noticeable consequences of climate change, a
greater consciousness of sustainable lifestyles on the part of the customer and, not least,
underlying factors such as the Paris Climate Agreement. As we transition from automotive
manufacturer to mobility group, we have reset our priorities with NEW AUTO and are positioning
ourselves for the future. We are keeping our aim of being a world-leading provider of sustainable
mobility firmly in our sights and making the Group more focused, efficient, innovative, customer-
oriented and sustainable, as well as systematically gearing it toward profitable growth.

To this end, we have established clearly defined Group initiatives across the brand groups, with a
focus on our central technology platforms: “Architecture”, “Software”, “Battery, Charging &
Energy”, and “Volkswagen Group Mobility”. Furthermore, base initiatives form the foundation for
the Volkswagen Group’s strategic realignment.
The most important targets for each calendar year are defined and a Top 10 program is developed
at Group level So that the strategy can be implemented in operations throughout the year.
Priorities in the Group’s Top 10 Program for 2023 were financial robustness and planning,
products, the China and North America regions, software, technologies, battery and charging,
mobility solutions, sustainability, and capital markets. This Top 10 Program methodology has been
adopted by many business units in their functional area strategies and is being used to accelerate
implementation of the strategy with a high level of focus.

To make the progress in our focus topics – consisting of the initiatives of the NEW AUTO strategy
and the objectives of the Group’s Top 10 program applicable to the fiscal year – as transparent as
possible for management and employees, the Group Board of Management decided to structure
and regularly measure the strategic objectives and milestones using the OKR (Objectives and Key
Results) method. Accordingly, strategic objectives and envisaged key results are defined for all
focus topics. These are to be realized largely through time-limited projects and work packages,
each of which is measured by specific key performance indicators. The degree of achievement is
usually presented to the Board of Management three times a year. As such, the relevance of the
focus topics, and their objectives, milestones, projects and work packages, are regularly reviewed
at Group level.

Their focus is continuously monitored and adjusted as necessary or integrated into standard
operations. We report on the main objectives and interim results achieved in the reporting year
in the chapters “Internal Management System and Key Performance Indicators”, “Structure and
Business Activities” and “Sustainable Value Enhancement”.
1. Architecture

A future-oriented mechatronics platform will form the backbone for innovations, technology and
lasting competitiveness at Volkswagen. With the Scalable Systems Platform (SSP), we are creating
the next generation of an all-electric, fully digital and highly scalable mechatronics platform based
on a standardized software architecture. With this standardized platform, which can be scaled
from the smallest vehicles all the way up to the premium segment, the Volkswagen Group aims
to rapidly and efficiently provide its customers with innovative functions and technologies in their
vehicles, across all brands. By reducing complexity and the number of versions, the SSP will offer
maximum synergies and make fast, regular technology updates possible, while lowering
investment costs and ensuring the necessary differentiation between the products of the
individual Brands in the Group’s portfolio.

2. Software

The purpose of the Group’s own software and technology company CARIAD is to create the
technical basis for Data-based business models, new mobility services and automated driving
(Level 4), and to leverage cross-brand synergies. Here we are pursuing the following strategy: we
intend to develop software for central control points in the vehicle either in-house or together
with third parties in strategic partnerships. CARIAD is collaborating with leading technology
companies to integrate further innovative solutions. Together with the Porsche and Audi brands,
CARIAD is working to introduce the new E3 1.2 platform, which optimizes the interaction between
the hardware and the vehicle software and is also intended to serve as a key lever for data-driven
development and for the introduction of new services even after vehicle production has begun.

In the long term, the standardized E3 2.0 software architecture is to form the basis of a complete
digital ecosystem, offering customers a wide range of software-based services throughout the
entire product lifecycle. The software-centric approach of the E³ 2.0 architecture constitutes a
paradigm shift in vehicle development. This is to form the basis for the Volkswagen Group’s
software-defined vehicles. The aim is for every function that is needed or requested, and for every
service, to be customized for the customers in the various markets and to be available for
download at any time. This will also open up new sources of revenue for us.

Applications at various levels of automated driving (up to Level 4) are to be gradually introduced
to the new vehicle models in the Group brands. In this context, CARIAD is responsible for
developing software and a technology stack for automated driving.
3. Battery Charging & Energy – Battery Strategy

The battery is a key component in an electric vehicle, and an important cost factor. The appeal
and market success of e-mobility is determined not only by the price, but also by the vehicle’s
range and its charging speed. In order to achieve our objective of transforming into a world-
leading provider of sustainable mobility, we intend to become a profit-generating expert across
the entire battery life cycle. To this end, the Cell and Battery Strategy tech initiative pools expertise
across the Group and is driving the transformation process in cooperation with our strategic
partners.

The aspects covered include battery development, cell production, vertical integration, large-
scale storage systems and recycling. Our primary aim is to develop battery cell technology into a
core competence in the group, and we are also working with partners to achieve this. At the heart
of this strategy is the unified cell, Which can contain differing chemistries and is to be used in up
to 80% of Group models by 2030. The economies of scale this generates are expected to reduce
costs by up to 50% and put us in a leading cost position. To cover Athe high demand for battery
cells, Volkswagen plans to build its own gigafactories around the world. The cornerstone for these
activities was laid in Salzgitter/Germany. Using the standard factory concept to optimize
investment, further factories are to follow swiftly in Valencia/Spain and St. Thomas/Canada. The
aim is to meet about half of the rapidly growing need for battery cells ourselves by 2030.

4. Battery Charging & Energy – Energy Services

A sustainable, stable charging and energy infrastructure is a key prerequisite for accelerating the
transformation to the battery-electric mobility of the future. It is therefore our intention to also
become a comprehensive charging and energy service provider in future and we are investing
heavily in the worldwide development of an open, fast-charging network. By 2025, we and our
partners plan to create around 45,000 high-power charging points in Europe, China and the USA.
The product portfolio also includes the full range of charging solutions for Private customers and
companies. In addition to our own wall box and flexible fast-charging station (Flexpole), the focus
is particularly on contract-based charging services and smart green electricity tariffs. The aim is
for Charging processes to be controlled in such a way that they tap into renewable energy, thus
reducing the Pressure on the power grids. In a next step, Volkswagen intends to use the electric
vehicle as a mobile power bank, and thus help to enable electric vehicles to act as additional
storage units and become an active part of the energy system in the future. In this way,
Volkswagen wishes to make its customers part of the smart Charging and energy ecosystem for
decarbonized mobility. Our goal here is farsighted use of scarce resources in the electric power
industry.

Volkswagen Business Model 2.0

The Business Model 2.0 base initiative is developing a Group-wide portfolio of services, the
purpose of which is to create a seamless and innovative product experience to connect brands,
customers, dealerships, our partners and whole markets. The aim is for the key technologies
needed for this to be integrated into a majority of the Platform-based vehicles by 2030. Using
connected vehicles, the Group’s brands are to be able in future to remain in contact with their
customers throughout the entire vehicle life cycle and thus to offer them services and functions
for their individual needs. This will allow us to build a competitive, data-driven service portfolio
that also maintains our strong position in the automotive market in future.

1. North America (NAR) Region

For the Volkswagen Group, the North America region, and particularly the USA, has great growth
potential, especially where e-mobility is concerned. We intend North America to become our
third core region alongside europe and China by 2030. Our aim there is to achieve a very strong
increase in total market share for the Volkswagen Group by then.

We aspire to further expand our presence in the region with strong brands and prepare ourselves
for the Future with market-specific products. We also wish to participate to a disproportionately
high extent in the growth of the increasingly electrified Markets in the USA and Canada. We will
therefore substantially expand our range of all-electric models across the Group and develop
models specifically for these markets. With our new vehicle brand Scout, we intend to address
the core segments of the North American electric vehicle market with tailor-made products. The
proportion of battery-electric vehicles in our sales in the USA and Canada is to increase to 55% by
2030.

In addition, we wish to maximize the potential for synergies in the region and build more
expertise, industrial capacity and vertical value chains in the North America region.
2. China Region

China is of major strategic significance to the Volkswagen Group as its largest single market. All
key measures are therefore brought together in this strategic base initiative in order to continue
Volkswagen’s success story in China. These include localized development activities that are
tailored to the market (the in China for China Approach), competitive products, the deepening of
our existing partnerships and forging of new ones, and a comprehensive program of measures for
achieving a permanent reduction of costs to safeguard long-term profitability.

Our aim for 2030 is to take a leading role in China as an international mobility provider and
manufacturer of fully connected vehicles. As part of our localization strategy (in China for China),
we therefore want to pool and expand our local development capacity to a greater extent in the
coming years. In so doing, we want to considerably speed up the development of intelligent
connected vehicles (ICVs) and be in a position to offer tailormade products to our Chinese
customers faster. In the market for vehicles with conventional drive systems, we want to further
strengthen our share of the market with new vehicles and secure it for the long term, as these
Vehicles’ high unit sales will also make a corresponding contribution to profitability in future.

3. Group Steering Model

To achieve the objectives of the Group strategy and thereby safeguard the Volkswagen Group’s
long-term success, we are extensively optimizing our Group Steering Model. It is essential that
we establish a consistently high level of mechanisms that facilitate swift decision-making, the
development and use of platform technologies and the exploitation of synergies, and that we
constantly enhance these. The updated Group Steering Model places the brand groups and
technology platforms center stage in order to scale up the latter while maximizing synergies
across the entire Group product portfolio. A new strategy and product planning process that has
been optimized for efficiency is being developed on the basis of this approach. The package of
measures for this initiative hones the definition of roles and responsibilities in the Group and
improves transparency

In this respect both inside and outside the Company. It also promotes the entrepreneurship of
the independent units and brands and at the same time strengthens collaboration across the
Group.
4. People and Transformation

As it becomes a global tech company, the Volkswagen Group will see the biggest transformation
of its workforce in its corporate history. To ensure the Group remains competitive in future, we
need to attract top talent and support existing employees by providing extensive training where
required. Our aim is to retain staff for the long term. It is therefore fundamental that we address
the changing needs of our employees and offer them an outstanding employee experience. To
achieve our Group’s ambitious objectives, we must also create and promote an environment for
productive teams, resulting in a strong, sustainable and socially responsible corporate culture that
fosters a sense of belonging and loyalty to the Company. A further focus is on aligning the
Company With society and the environment.

5. Financing the Transformation

The transformation being driven by digitalization and electrification will require extensive
investment. To meet this need for financing, the “Financing the Transformation” base initiative
aims to leverage even more Group-Wide synergies across all functional areas along the value
chain, focusing on costs and efficiency. The Group has therefore set itself the objective of lasting
improvements to its fixed-cost structure, plant productivity, procurement costs, distribution
expenses and working capital management.

Market and Industry Trends

Trends in the Markets for Commercial Vehicles
For 2024, we expect to see a noticeable downward trend in new registrations for mid-sized and
heavy trucks with a gross weight of more than six tonnes compared with the previous year in the
markets that are relevant for the Volkswagen Group, with variations from region to region.

A noticeable decline in the market is expected in the 27 EU countries excluding Malta, but plus
the United Kingdom, Norway and Switzerland (EU27+3). A large part of the pent-up demand for
trucks from recent years was already met in the reporting year, meaning that demand will return
to normal in 2024. We anticipate that Türkiye will see a significant drop in demand. In South
Africa, we expect demand to be on a level with the previous year. The truck market in North
America is divided into weight classes 1 to 8. We expect a noticeable decrease in new registrations
in the segments relevant for Volkswagen – Class 6 to 8 (8.85 tonnes or heavier).
After a weak 2023 impacted by new emissions legislation, we estimate that demand in Brazil will
pick up again and be noticeably higher than in the previous year. On average, we anticipate that
the relevant truck markets will remain at a steady level for the years 2025 to 2028.

A noticeable year-on-year increase in demand is anticipated for 2024 in the bus markets relevant
for the Volkswagen Group, whereby this will vary depending on the region. In the EU27+3 region,
we expect demand on a level with the previous year. We forecast a significant increase in demand
for school buses in the USA and Canada. For the bus market in Mexico, we anticipate a significant
decline in volumes on account of the very strong trend in the reporting year. New registrations in
Brazil will probably be on a level with the prior-year figure. Overall, we expect demand for buses
to be steady on average across the relevant markets for the period from 2025 to 2028.

Trends in the Markets for Power Engineering

For 2024, we generally expect the market environment in the Power Engineering Business Area
to remain challenging. The current geopolitical situation and the development of energy and
commodity prices will continue to generate uncertainty in virtually all markets. The market
volume in merchant shipping in 2024 is expected to remain at a stable level compared with the
reporting year. Rising demand for new bulk carriers and tankers is anticipated, while demand for
container ships and LNG tankers is expected to be at a lower level. The areas outside merchant
shipping are likely to reach a higher level than in 2023. We expect to see an improvement in the
cruise ship business due to the renewed rise in demand for travel activities. The passenger ferry
market is also expected to grow. We continue to anticipate a stable high level of demand for
government vessels. In the offshore sector, further new order volumes for special applications
are expected, such as for special offshore ships for wind turbines. Overall, we predict that the
marine market will reach a similar level to that seen in the 2023 reporting year, with sustained
competitive and price pressure. The general focus will continue to be on building new highly
efficient ships that meet future emissions targets.

The market for power generation will remain in upheaval in 2024. Uncertainty in relation to
sustainable and future-proof power generation will be prevalent, particularly in countries that
have established clear climate neutrality targets. In these countries, the framework conditions
required to expand the infrastructure for carbon-neutral fuels are often not yet fully developed.
This remains a reason for cautious investment behavior. In the Core business, we see a need for
decentralized, hydrogen-ready power plants, primarily in Europe. Outside Europe, demand for
ammonia-capable engines will increase. With an increasing proportion of renewable energy in
the distribution networks, a further rise in demand for balancing facilities is expected around the
world. These are used to meet power requirements if darkness and lack of wind mean that the
share of renewables is not sufficient to ensure security of supply. A positive trend in demand for
large electrolyzers as well as for power-to-methane and power-to-methanol plants continues to
be expected. We see a very dynamic global competitive environment in these areas with new
providers and international partnerships. Alongside the risks posed by a continued lack of price
stability in the markets and by bottlenecks in supply chains, we expect strong competition and
price pressure – both in the core business and for power-to-X solutions.

In turbomachinery, we expect sustained demand in 2024 for new applications relating to the
energy transition and climate protection. Our traditional business will decline somewhat from a
high level, primarily in oil and gas production. We nevertheless expect that the production plants
will continue to be well utilized, assuming the level of competition seen to date is sustained.

Both in the after-sales market for engines in the marine and power plant business and in the after-
sales market for turbomachinery, we anticipate continued robust demand in 2024 albeit below
the level of the Reporting year, with the fraught geopolitical situation generating uncertainty.

For the period 2025 to 2028, we expect to see growing demand in the power engineering
markets. However, the extent and timing of this growth will vary in the individual business fields.
It also remains to be seen how long the markets will be adversely affected by the major influential
factors of global conflicts and energy sector trends.

Trends in the Markets for Financial Services

We assume that automotive financial services will prove highly important to global vehicle sales
in 2024. The continuing shortages of intermediates and commodities may generate uncertainty,
exacerbated by the consequences of the Russia-Ukraine conflict and the confrontations in the
Middle East. Furthermore, the increased interest rates could put pressure on the demand for
financial services. We expect demand to rise in emerging markets where market penetration has
so far been low. Regions with established automotive financial services markets will probably see
a continuation of the trend towards achieving mobility at the lowest possible total cost. The shift
from financing to lease contracts that has begun in the European financial services business with
individual customers will continue. Integrated end-to-end solutions, which include mobility-
related service modules such as insurance and innovative packages of services, are likely to
become increasingly important.

Additionally, we expect that demand will increase for new forms of mobility, such as rental and
car subscription services, and for integrated mobility services, for example parking, refueling and
charging. We anticipate an increase in the importance of direct business between manufacturers
and customers. The seamless integration of financial services into the online vehicle offering will
become increasingly important in the promotion of this type of business. We estimate that this
trend will also persist in the years 2025 to 2028.

In the mid-sized and heavy commercial vehicles category, we are seeing rising demand for
financial services products in the emerging markets. In these countries in particular, financing
solutions support vehicle sales and are thus an essential component of the sales process. In the
developed markets, we expect to see increased demand for telematics services and services
aimed at reducing total cost of ownership in 2024. This trend is also expected to persist in the
period 2025 to 2028.

Trends in the Markets for Passenger and Light Vehicles

The trend in the automotive industry closely follows global economic developments. We assume
that competition in the international automotive markets will intensify further. Crisis-related
disruption to the global supply chain and the resulting impact on vehicle availability may weigh
on the volume of new registrations. Uncertainty may also arise from shortages of intermediates
and commodities. These may be further exacerbated by the consequences of the Russia-Ukraine
conflict and the confrontations in the Middle East and may, in particular, lead to rising prices for
materials and a declining availability of energy.

We predict that trends in the markets for passenger cars in the individual regions will be mixed
but predominantly positive in 2024. Overall, the global volume of new car sales is expected to be
slightly higher than in the previous year. We are forecasting growing demand for passenger cars
worldwide in the period from 2025 to 2028.

Trends in the markets for light commercial vehicles in the individual regions will be mixed; on the
whole, we expect the sales volume for 2024 to be slightly above the previous year’s figure. For
the years 2025 to 2028, we expect demand for light commercial vehicles to increase globally.

1. Europe/Other Markets

For 2024, we anticipate that the volume of new passenger car registrations in Western Europe
will be slightly higher than that recorded in the reporting year. Limited vehicle availability as a
result of the shortages of inter-mediates and commodities may continue to weigh on the volume
of new registrations. For the major individual markets of France, the United Kingdom, Italy and
Spain, we expect growth in 2024 to varying degrees between slight and noticeable.

For light commercial vehicles, we expect the volume of new registrations in Western Europe in
2024 to be noticeably up on the previous year’s level. Limited vehicle availability as a result of the
shortages of intermediates and commodities may continue to weigh on the volume of new
registrations. We expect a noticeable to significant increase in France and the United Kingdom. In
Italy, we anticipate that registrations will fall slightly, whereas we expect slight growth in Spain.

Sales of passenger cars in 2024 are expected to significantly exceed the prior-year figures overall
in markets in Central and Eastern Europe – subject to the further development of the Russia-
Ukraine conflict. We expect a mixed development in the major markets of this region. Subject to
the further development of the Russia-Ukraine conflict, registrations of light commercial vehicles
in the markets of Central and Eastern Europe are expected to fall slightly short of the prior-year
figures in 2024. The volume of new registrations for passenger cars in Türkiye in 2024 is projected
to fall considerably short of the previous year’s high level. In South Africa, the market volume is
likely to be up noticeably year-on-year. The volume of new registrations for light commercial
vehicles in 2024 is expected to fall very sharply in Türkiye but to be noticeably above the prior-
year figure in South Africa.

2. Germany

In the German passenger car market, we expect the volume of new registrations in 2024 to be
slightly up on the prior-year level. We anticipate that the number of registrations of light
commercial vehicles in 2024 will also be slightly up on the previous year’s figure.

3. North America

The sales volume in the markets for passenger cars and light commercial vehicles (up to 6.35
tonnes) in North America overall and in the USA in 2024 is forecast to be slightly higher than the
level seen in the previous year. Demand will probably remain highest for models in the SUV and
pickup segments. New registrations of all electric vehicles are also expected to increase strongly.
In Canada, too, a slight increase is expected in the number of new registrations compared to the
previous year. For Mexico, we also expect a slight increase in new registrations compared with
the reporting year.

4. South America

Owing to their dependence on demand for raw materials worldwide, the South American markets
for passenger cars and light commercial vehicles are heavily influenced by developments in the
global economy. We anticipate a slight increase overall in new registrations in the South American
markets in 2024 compared with the previous year. The market volume in Brazil is expected to
increase noticeably compared with 2023. We anticipate that the volume of new registrations in
Argentina will be slightly lower year-on-year.

5. Asia-Pacific

The passenger car markets in the Asia-Pacific region are expected to be slightly up on the prior-
year level in 2024. We estimate that the market volume in China will also be slightly higher than
the comparative figure for 2023. Plug-in hybrid models with long ranges are likely to be
increasingly in demand. A weaker than expected economic recovery or worsening geopolitical
tensions may have adverse effects. In particular, the trade dispute between China and the United
States is likely to continue to weigh on business and consumer confidence, as long as there is no
resolution in sight. We project that the Indian and Japanese markets will remain at the prior year
level.

The volume of new registrations for light commercial vehicles in the Asia-Pacific region in 2024
will probably be slightly higher than the previous year’s figure. We are expecting demand in the
Chinese market to be slightly lower than the prior-year level. For India, we are forecasting that
the volume in 2024 will be on a level with the reporting year. In the Japanese market, we estimate
that volumes will be slightly lower year-on-year.
Procurement Practices of Volkswagen
The main task for Procurement is to help steer the Company’s success in the areas of efficiency,
sustainability and resilience. 2023 was mainly devoted to safeguarding the supply of vehicle parts
and optimizing costs in order to make a contribution to the Group’s result. The previous year’s
rising energy prices again resulted in catch-up effects at our suppliers in the reporting year.
Dealing with supplier requirements so as to safeguard the supply of our components was
therefore a key task for Group Procurement.

Procurement strategy

The procurement organizations at the Volkswagen Group are an integral part of the NEW AUTO
Group strategy. A key task is to strengthen the procurement network and intensify cooperation
across brands and regions. Making Use of global synergies also creates potential for a long-term
reduction in costs for raw materials, components and services.

The frequency, duration and intensity of crises and the supply chain disruption they entail have
risen signifi cantly since the beginning of the 2020s. As a consequence, the procurement
organizations intend to work together with internal interface partners and suppliers to strengthen
supply resilience. By establishing strategies and tools and providing additional capacity for
strategic and risk analyses, the aim is to enable forward-looking and comprehensive monitoring
of supply chains in line with defined criteria, such as political influencing factors, economic
developments, or environmental risks.

The transformation of the automotive industry toward e-mobility means that the procurement
organizations must adapt their supplier network. The way in which the Volkswagen Group works
with these suppliers will be shaped on an individual basis through strategic partnerships, treating
the transformation as a joint undertaking. Expansion of partnerships is generally another area of
focus in Procurement, both internally in the form of collab oration across brands and departments
and externally with the Volkswagen Group's suppliers. Digitalization and efficient processes are
the foundation for all such strategic measures. The roll-out of a new digital supplier plat form
interaction and the successful connection of the cross-sectoral data network Catena-X in 2022
were particularly noteworthy in this regard.

E-mobility

As technology advances, the automotive industry is rapidly forging ahead with its transformation
toward e-mobility. A key task for Procurement is to safeguard supplies in order to meet the
constantly growing require ments brought about by this change in a way that is sustainable and
cost-efficient. Sustainable actions, trans parent supply streams, and energy- and carbon-
optimized supply chains are important elements of our contract awards. We support our partners
with active management of the supplier transformation, as the industry moves from combustion-
engine to all-electric vehicles, and with a lasting reduction in CO, emissions along the entire
supply chain. To put our Company in a leading cost position, we award Group contracts that pool
global demand from the markets of Europe, North and South America, and Asia-Pacific. To reduce
economic and geopolitical risks, we use diversified supply chains in conjunction with a dual-
supplier strategy as well as localization of the supplier portfolio for all core components of our all-
electric vehicle fleet.

Digitalization of Supply

We are working to implement a completely digitalized supply chain. This is intended to help us to
safeguard supply and leverage synergies throughout the Group. We are therefore creating a
shared database and using innovative technologies to enable efficient, networked collaboration
in real time - both within the Group and with our partners. The Procurement division aims to
standardize transactions with our suppliers in the future and automate them where possible. This
will not only reduce transaction costs but will also accelerate business processes. The integration
of Catena-X, the data network for the automotive industry, is one important part of this. It will
allow possible supply risks to be identified at an earlier stage and appropriate measures and
alternatives to be jointly developed faster. We are following the implementation of
Procurement’s digitalization strategy with the specific aim of not only eliminating the weaknesses
of Procurement’s IT system environment but also increasing the organization’s effectiveness,
efficiency and future viability. The initial systems or modules such as a cloud-based module for
automating procurement activities in the vehicle project phase and an acclaimed online
negotiation tool have already been implemented and integrated into the existing system
environment.

Structure of key Purchasing Markets

Procurement at the Volkswagen Group is responsible for ensuring cost-efficient, resilient and
sustainable supply chains. Procurement is organized at a global level, with a presence in the most
important purchasing markets around the world. Alongside local bodies and decision-making
structures, Group Procurement manages the brands and regions. This helps us to jointly
implement potential cost savings and to control risks. Organized net working of the procurement
organization in the brands will enable us to leverage Group-wide synergies and purchase
production materials, investments in property. Plant and equipment, and services worldwide at
the quality required and on the best possible terms. In addition to the brands’ procurement units,
Procurement operates regional offices in strategic purchasing markets. Working together in the
procurement organization, these constantly identify and qualify new local suppliers.

Supply Chain Management in Procurement

Supply chain management activities at Procurement are focused on safeguarding supplies during
start-up phases and for series production. This entails providing support in our suppliers’
industrialization processes, monitoring series production and managing supply crises, which may
arise, for example, as a result of geo political crises such as the Russia-Ukraine conflict or natural
disasters such as the flooding in Slovenia. By intro ducing strategic semiconductor purchasing, the
Volkswagen Group is realigning the procurement of these electronic components for the future.
The procurement organization therefore intends to assume direct negoti ating responsibility for
strategically important semiconductor volumes so as to safeguard long-term supply and ensure
competitiveness.

Even in the early stages of new projects, we conduct audits to ensure that our suppliers will be
able to deliver. Furthermore, we provide support for purchased parts along the individual project
milestones up to the start of production. Complex components in particular frequently require
onsite support from our supplier management team. Finally, an acceptance test of production
capacities is carried out to facilitate the timely start of series production of the vehicles at our
plants.

In addition, regular checks are carried out during series production, for example related to the
continuous matching of demand and capacity or possible capacity adjustments at suppliers. This
also safeguards the capac ity at suppliers when using existing components in new projects.

Thanks to our established crisis management structure and global supplier network, we are able
to overcome complex challenges along the supply chain and have access to a wide range of
locations and technologies. Cross-divisional work among Procurement, Quality Assurance,
Development, Production and Logistics largely prevented looming losses due to supply risks and,
in cases where a reaction was required, maintained pro duction capability. Nevertheless, the
precarious situation in global supply chains resulted in limited vehicle avail ability for customers,
albeit to a lesser degree than in the prior year.

Sustainability in supplier relationships

Successful relationships with our business partners are based on respecting human rights,
compliance with occupational health and safety standards, active environmental protection and
combating corruption. These sustainability standards are defined in the contractually binding
Volkswagen Group Requirements for Sustainability in Relations with Business Partners (Code of
Conduct for Business Partners), updated in 2023. The Code of Conduct for Business Partners also
sets out the expectation that business partners will pass on the requirements formulated therein
along the supply chain. We review compliance with the requirements, which has been an explicit
condition for the award of contracts since 2019, using sustainability ratings (S-rating) for relevant
companies and suppliers. The relevance of a business partner for this rating depends, among
other things, on the size of the company or the risk exposure arising from the type of service
provided.

In our sustainability rating, we determine the sustainability performance of our suppliers by

means of self disclosures and in a risk-based evaluation process involving audits. In the reporting
year, we received 10,912 S-ratings for suppliers. The proportion of revenue contributed by
suppliers with a positive S-rating amounts to 79% of the total procurement volume. Both the
validation of the questionnaire and the performance of the audits are carried out by selected
service providers. As a rule, contracts are not awarded to suppliers who fail to meet our
requirements concerning compliance with sustainability standards. Tying award decisions to
sustainability criteria is one of the strongest levers for enforcing these. We address existing
sustainability risks and violations of sustainability principles by systematically defining and
implementing measures to correct these; this also includes the upstream supply chain. To enable
continuous supplier development, we invite our suppliers to attend sustainability training courses
and workshops on specific topics at selected sites or online and also offer web-based training. In
the reporting year, over 7,700 suppliers received such training.

With regard to decarbonization, the Volkswagen Group is striving to continuously reduce

greenhouse gas emissions or avoid them altogether over the entire life cycle of a vehicle. The
Group’s transformation into a provider of sustainable mobility solutions and in particular the
trend towards e-mobility are shifting the action required from the service life of the vehicle to
supply chains and the manufacture of vehicles and components as well as the disposal thereof
following the vehicle’s Use phase. We are aware of our social responsibility and are committed to
the Paris Climate Agreement. In the Modular Electric Drive Toolkit (MEB), we have incorporated
the Use of renewable energy. Among other things, into the contracts with cell manufacturers. For
new vehicle projects, CO: emissions will be a technical feature for relevant components for the
Volkswagen Group in the future. This means our suppliers will be given binding CO. targets, with
which they must be able to demonstrate compliance at any time. One example is the Scalable
Systems Platform (SSP), the new mechatronics platform on which the batteries have a CO, limit.
To be able to achieve these limits, suppliers need to implement measures in their own production
processes and upstream chains – for example, the use of renewable electricity. Measures like
these are designed to reduce the carbon footprint of many electric vehicle models. For the ID.
Models, the Volkswagen Passenger Cars brand uses additional sustainable components, including
battery cases and wheel rims made of CO,-reduced aluminum. In this way, the ID. Family’s carbon
footprint is to be improved by around two tons per vehicle by 2025.

In our sustainable supply management, we are also involved in protecting groups of people who
may be subject to a high risk of potential human rights violations at any point in our supply chain.
We implemented a Human Rights Focus System in 2022 to achieve greater impact in this context.
Our aim here is to identify and work on issues that can be associated with human rights and
environmental risks and that require more in-depth analysis. The aim is to implement suitable
prevention and remedial measures that take into account the diverse and often structural causes
of human rights violations. We continued to implement our activities as part of the raw materials
due diligence management system in 2023 to manage the sometimes extensive risks in the
upstream raw material supply chains. The management system currently comprises 18 high-risk
raw materials, for which we use risk-based specific measures to identify, measure and, in
particular, reduce sustainability risks. For our battery suppliers, transparency requirements
constitute an important basis for responsible raw material purchasing. Within the framework of
these contractual requirements, we ask, for example, that our battery sup pliers disclose their
entire upstream supply chain before we award new contracts.
Technology

The "Technology" Board function is divided into four pillars, the so-called tech stacks. These
encompass all activities related to the development, manufacture and procurement of battery
cells and systems as part of the "Cell and Battery Strategy" tech initiative, all Group-wide topics
in the "Charging and Energy Services" tech initiative, the activities of Volkswagen Group
Components and the marketing of Volkswagen platforms and com ponents to third parties
(Platform Business).

Cross-brand management of technology activities and a value creation strategy coordinated

throughout the Group are designed to improve the Group's future viability and competitiveness.
Synergies are to be leveraged across both traditional technologies and future areas to advance
the transition to e-mobility.

The Volkswagen Group formalized its objectives for "Battery, Charging & Energy" by 2030 in its
technology roadmap. With the battery roadmap, we aim to substantially reduce the complexity
and cost of this key technol ogy so as to make electric vehicles attractive and affordable for as
many people as possible.

Battery

Our battery activities pillar is divided into two areas: the Center of Excellence and PowerCo. The
responsibilities of the Center of Excellence include Group-wide product management,
procurement and quality assurance for the battery cell and battery system, and closed-loop
recycling. PowerCo will be an important cell supplier for the Group in the future.

In 2022, Volkswagen founded PowerCo SE, its own battery company, which will bundle the
Group's global cell production activities. From the new European battery hub in Salzgitter, this
company will manage the devel opment of international factory operations, continuous
development of cell technology, vertical integration of the value chain and supplies of machinery
and equipment to factories. PowerCo's approach is based on two key concepts with which it aims
to set future industry standards: a unified cell enables flexible use of different battery chemicals
and is intended to be used in up to 80% of all Group models in future. The second key concept is
the standard factory, which aims to enable the rapid rollout of in-house production with
standardized build ings, equipment, IT and infrastructure and will thus be quickly and flexibly
adaptable to future innovations.

The Group's first own cell factory based on this model is being built in Salzgitter and is due to
open in 2025. The first machinery for cell production was delivered and installed in 2023.
Alongside Salzgitter, a second cell factory is being built in Valencia, Spain. In 2023, PowerCo also
took the decision to build another cell factory in St. Thomas, Canada. Each factory is to operate
on renewable power and be designed for future closed-loop recycling.

Vertical integration of value creation is a major component of the battery strategy. By building up
its own cell production, Volkswagen will progressively take charge of further stages of the value
chain so that it can exercise greater influence over the availability, cost and sustainability of key
raw materials and other items. The supply of raw materials is being safeguarded using a three-
part strategy: long-term supply contracts, investment with partners, and procurement on the
commodity spot market, backed up by financial hedging.

Cathode materials have a key role to play in the transformation to e-mobility as a driving cost
factor and main component in batteries. PowerCo and the Belgian materials technology group
Umicore have formed the joint venture IONWAY, which aims to supply cathode and primary
materials to the European cell factories starting in 2025. The partners aim to be producing
materials for 160 GWh of cell capacity per year by the end of the decade. The planned cathode
factory will be built in Nysa/Poland.

Charging and Energy

Since 2021, the Charging and Energy area has played a key role in the Volkswagen Group's e-
mobility strategy with the aim of becoming a leading provider of a smart charging and energy
ecosystem.

As part of the strategic alignment, the Group is focusing on two key areas. Firstly, sales of electric
vehicles are being underpinned by the development of a global fast-charging infrastructure. In
Europe, the Group and its brands are involved in the pan-European joint venture IONITY, the
Ewiva joint venture in Italy and other partnerships. By 2025, the number of public fast-charging
points in Europe is to increase to 18,000. At the same time, both the North American charging
network Electrify America - already one of the largest public charging networks in the USA - is to
be expanded to 8,000 fast-charging points and CAMS in China is to be enlarged to 17,000 fast-
charging points. Secondly, the Group is opening up new business models involving smart charging
and energy solutions. The Group operates as one of the largest vehicle-charging subscription
providers in Europe with its charging and energy brand Elli. Its charging network offers access to
over 600,000 charging points Europe-wide with approximately 35,000 fast-charging points in 27
countries. In addition, Elli's product portfolio also includes the full range of charging solutions for
private customers and companies, from the Company's own wall box to the flexible fast-charging
station Flexpole and smart charging solutions. As part of a pilot project involving the smart control
of stationary batteries, Elli also began trading electricity in 2023. This makes Volkswagen the first
automotive group to trade on the EPEX Spot power exchange.
Volkswagen Group Components

The independent corporate entity Volkswagen Group Components, under the umbrella of
Volkswagen AG, forms the third pillar of the "Technology" Board function. Some 70,000 staff with
expertise in developing and manufac turing vehicle components work worldwide in more than 60
plants at 45 sites.

The product portfolio is focused on technical components such as chassis, axle systems, steering,
transmis sion, electric drives, thermal management systems in the electric drivetrain and battery
systems.

With its entry into e-mobility, Volkswagen Group Components were able to work systematically
on optimizing the electric drivetrain thanks to close cooperation between product management
and development. In 2023, it debuted the new, highly efficient APP550 electric drive, which
features both higher performance and improved efficiency. The new powertrain was developed
by Volkswagen Group Components together with Technical Development at Volkswagen
Passenger Cars and is being used for the first time in the Volkswagen ID.7. It is produced at
Volkswagen's site in Kassel.

Platform Business

The fourth pillar of the "Technology" Board function is Platform Business (third-party business),
which pools Group-wide responsibility for the sale of platforms and components to external
companies. This organizational unit is responsible for the successful initiation, acquisition
(including contract design) and support of customer projects including the related order
processing (logistics, billing). In the cooperation project with Ford, the necessary cross-brand
structures and processes have been created within the Volkswagen organization so that other
external customers can also be efficiently served in the future. Ford plans to produce
approximately 1.2 million MEB-based vehicles for the European market by the end of the decade.
In 2023, the automaker presented the Ford Explorer, the first model based on the MEB.
Volkswagen is also continuing to explore a supply agreement with Indian automaker Mahindra
for MEB components such as electric motors and battery cells.

Production Practices of Volkswagen

Our international cross-brand production network covers all stages in the process from the
supplier to the fac tory and assembly line, and from the factory to dealers and customers. Its
enduring efficiency is a prerequisite for our competitiveness. To be able to meet the challenges
of the future, we rely on holistic optimizations, forward looking innovations, robust supply
streams and structures, and flexibility in the production network. At 9.31 million vehicles, the
Volkswagen Group’s global vehicle production in fiscal year 2023, including the Chinese joint
ventures, was 6.8% up on the prior-year figure. Productivity, including the Chinese joint ventures,
increased by 2.5% compared with the previous year.

Both the parts shortages and the disruption of supply chains, most recently caused by the
flooding in Slovenia, restricted production in the Volkswagen Group in 2023. The supply and
production situation eased toward the end of the reporting year.

Production Strategy

Production is supporting the NEW AUTO Group strategy with its one.PRODUCTION functional
area strategy. We are sharpening our focus in the transformation of our production and logistics,
whereby our aim is to minimize expenditure, streamline processes and strengthen the team.

The overarching aim is to increase productivity and profitability. This will enable us to
manufacture high quality products at our sites that give customers maximum benefit at
competitive prices. We are adopting a cross-brand approach for the thematic focus of our
activities in order to pool the strengths and potential of our global production and logistics across
brands and take advantage of the resulting synergies.

Our strategy process is based on a scenario methodology. As part of this, the strategic orientation
of pro duction is checked at regular intervals to verify that it is up to date. This provides the
thematic framework for the topics being focused on in the year in question. These range from
people-related subjects such as skills fore casts, to efficient and resilient processes, safeguarding
the achievement of cost targets, digitalization and the environment, and the production and
logistics network.
Global Production Network

The Group’s production network encompasses 115 production sites, including our Chinese joint
ventures. 70 of these sites are vehicle production plants. Standardizing production with uniform
product concepts, plants, operating equipment and production processes within a product family
is a key factor in our forward-looking production. We are constantly enhancing our production
concepts and aligning them with new technologies to achieve ambitious targets in the individual
projects. In a challenging environment, the Volkswagen Group sUCceeded in starting up 44
vehicle projects in 2023, 16 of which were new products or successor products and 28 were
product upgrades and derivatives.

The flexible production capacities provided by our platforms allow us to respond to changing
market require ments, make needs-based use of the production network, and leverage synergies
across brands through multi brand sites. Of the 45 vehicle production plants for passenger cars
and light commercial vehicles, almost half are already multibrand sites. Models for this approach
within the Group are the Bratislava and Zwickau sites. In Bratislava, vehicles of the Volkswagen
Passenger Cars, Škoda, Audi and Porsche brands are produced on the joint Modular Longitudinal
Toolkit (MLB) and Modular Transversal Toolkit (MỌB) platforms. At present, we are manufacturing
vehicles of the Volkswagen Passenger Cars, Audi and CUPRA brands on the joint Modular Electric
Drive Toolkit (MEB) platforms in Zwickau.

With its NEW AUTO Group strategy, the Volkswagen Group is pursuing the goal of becoming one
of the world’s leading providers of sustainable mobility. The focus here is on mobility solutions
that are innovative, efficient, sUstainable and customer-oriented, as well as geared towards
profitable growth. The introduction of the MEB served as a basis for this, and complements our
portfolio with additional battery-electric vehicles. We have been manufacturing battery-electric
vehicles based on the MEB in Zwickau, the Volkswagen Group’s first fully electrified car factory,
since 2019. One example is the ID.3 from the Volkswagen Passenger Cars brand. From 2021, the
portfolio of the MEB platform in Zwickau was expanded through the addition of the CUPRA Born,
the Audi Q4 e-tron and the ID.S from Volkswagen Passenger Cars. Since 2023, Volkswagen has
also been manufacturing the ID.7 on the MEB platform in Emden. Furthermore, we use the all-
electric platform for premium and sports brands – the Premium Platform Electric (PPE) – to
leverage synergies in production across the brands. This meant that electric vehicles were
manufactured at 18 sites across the global production network as of year end 2023.
New Technologies and Digitalization

As part of the (one. PRODUCTION) strategy, the Group has developed the “Operating System
2030+” approach – a cross-brand vision for the factory of the future. An important dimension of
this, and a prerequisite for achieving it, is digitalization towards autonomous factories. The digital
transformation is thus shaping the future devel opment of our process landscape and data
ecosystem. The corresponding switch to value stream- and product oriented software
development within the Group is bringing greater focUS and speed to the implementation of
solutions. Overall, more than 69 new applications are already available for Use in the production
and logistics processes. Examples range from virtual training courses for new vehicle start-ups to
the identification and implementation of potential energy savings and the use of artificial
intelligence for parts supply by the Sched uling departments. The applications are now being
rolled out to over 40 plants via the Digital Production Platform (DPP) jointly developed with our
strategic partner Amazon Web Services (AWS).

In 2023, Volkswagen continued its commitment to Catena-X, the first open and collaborative data
space for the automotive industry. With Catena-X, Volkswagen is shaping the future of the
automotive supply chain in conjunction with other manufacturers and suppliers worldwide. The
aim is to build a global data ecosystem for the automotive industry with shared values regarding
collaboration, data sovereignty, trust and cooperation. Material traceability along with
overarching demand and capacity management and comprehensive bottleneck management are
some examples of how we intend to increase the efficiency of our plants and meet future supply
chain requirements at the same time. We began using the first applications for partner data
management in the supply chain in 2023. Further solutions, for instance for quality cycles and
managing shortages of materials, are to follow in 2024.

In the Volkswagen Group, digital and innovative technologies are systematically validated and
their use for production and logistics is piloted and rolled out. This is to enable the Group to
exploit potential for cost savings in the value chain and realize more flexible implementation
options, as well as quality improvements. The goal of the digital transformation in production and
logistics is to simplify the entire process chain, make the best possible Use of new technologies
and establish autonomous processes. Fields of innovation in 2023 included computer vision,
augmented reality, process mining, Al robotics and what is known as generative artificial intel
ligence (GenAlI). For example, artificial intelligence is being used on Volkswagen’s proprietary
computer vision platform to perform tasks such as complex image evaluations within the
operational production process, and is continuously transferred to other sites across the brands.
Opportunities to use GenAl are also being evaluated and tested across departments and brands.
Zero Impact Factory

We are planning the production of tomorrow with our (one. PRODUCTION) functional area
strategy. The use of resources and emission levels at Volkswagen Group sites require particular
attention. In the Zero Impact Factory program, we are developing specific steps towards more
sustainable production, guided by the vision of a factory that has no adverse environmental
impact. The brands have been using the measurement methods and management tools
developed for this since 2022. These enable us to record and reduce the quantitative
environmental impact of our production sites, particularly in the areas requiring action of climate
protection and energy, emissions, water and waste. We are also focusing on qualitative aspects
such as the appearance of our factories, our commitment to biodiversity, protection of the soil, a
functioning environmental compliance management system, improvement of our resource
efficiency, and environmentally friendly mobility management for employee and goods transport.
A further important milestone was reached in 2023. As part of an internal test phase, we are now
measuring 22 quantitative environmental indicators including CO: emissions, solvent emissions,
freshwater requirements, wastewater loads and different types of waste – at all sites where we
produce passenger cars and light commercial vehicles and are converting these into impact points
on the basis of their environmental relevance. This makes it possible to compare the
environmental impacts with one another and means we can implement reduction measures
targeted at precisely those areas in which the greatest positive impact for the environment can
be achieved. We use a site checklist to continuously review the status of implementation of a
further 143 environmental criteria. Examples of these include projects and measures geared
towards maintaining biodiversity, establishing environmentally friendly employee mobility, and
promoting the circular economy.

From 2025, the Zero Impact Factory method is to replace the existing KPl system, which measures
the reduction of the environmental impact of production (UEP). This represents a shift away from
steering based on indicators that are purely performance-based and vehicle-specific to a
reduction in the environmental impact of our production in absolute terms. Our goal is to achieve
Zero Impact status for all of our manufacturing plants for passenger cars and light commercial
vehicles by 2050.

To support programs such as these, a management system developed in-house started being
introduced at all production sites worldwide in mid-2019, linking the main compliance issues with
key environmental management issues. This environmental compliance management system
(ECMS) provides the foundation for compliance with all external and internal rules and
regulations relating to the environment.

ECMS implementation was initially concentrated on the major production and development
locations, and was extended in a second step to include Group companies whose business
activities entail a lower environmental risk. We continued to actively support, monitor and track
the rollout and advisory process in the reporting year.

We are encouraging networking and communication between the brands worldwide in order to
leverage synergies. Our environmental experts meet regularly in working groups. In addition, we
provide our managers and employees with specific training on the topic of environmental
protection.

We record and catalog measures in an IT system and make these available for a Group-wide
exchange of best practices. In the reporting year, approximately 1,540 implemented measures in
the area of environment and energy were tracked and documented via the Maßnahmen@Web
system. They serve to improve infrastructure and production processes for passenger cars and
light commercial vehicles and are incorporated into the decarbonization index (DKI), for example.
These activities may have a positive effect on the Group’s environ mental indicators and are often
beneficial from an economic perspective.

Zero Impact Logistics

In the joint Zero Impact Logistics initiative, the Group and brand logistics departments work
together to achieve the goals of the goTOzero environmental mission statement. By continuously
optimizing the transport network and logistics processes for example by means of digitalization –
we can avoid unnecessary shipments and reduce emissions. In addition, the use of new low-
emission technologies for transporting production materials and vehicles is examined, piloted
and accelerated.

The measures the Volkswagen Group Is taking to achieve carbon-neutral logistics in the future
also include, for example, moving shipments from road to rail and almost complete avoidance of
CO, through the use of green electricity in rail transport in Germany and other countries in
collaboration with railway companies. Volkswagen also transports high-voltage batteries for
electric vehicles in an environmentally conscious and efficient manner, for example at the
Volkswagen component site in Braunschweig. Here, the batteries are loaded fully auto matically
onto trains that run on renewable power, which then take them to the Volkswagen plant in
Zwickau.

Group Logistics uses two roll-on/roll-off charter ships powered by low-pollution liquefied natural
gas (LNG) to transport vehicles across the North Atlantic. At the end of 2023, it started the gradual
introduction of four more LNG-powered car freighters, and is thus progressively replacing
conventionally operated ships. Compared to other LNG-fueled marine engines, Group Logistics’
charter ships are more climate-friendly because the high pressure technology of the two-stroke
engines from MAN Energy Solutions allows almost no methane to escape. In principle, the dual-
fuel engines will also enable non-fossil fuels – such as biogas (bio-LNG), e-gas (synthetic gas) from
renewables and biofuel – to be used in future. This will allow carbon emissions to be reduced
even further. In the long term, Group Logistics also sees further potential to reduce the level of
CO2 with other alternative fuels.

Group Logistics permanently operates two charter ships powered by biofuel on European sea
routes. This fuel produces less CO2 than conventional fossil fuels, it is made from used cooking
oils and fats. These waste and residual materials that stem, for example, from the catering and
food industries, cannot be used for further processing into food or animal feed.

Marketing and Business Strategy of Volkswagen

Marketing Strategy of Volkswagen analyses the brand with the marketing mix framework which
covers the 4Ps (Product, Price, Place, Promotion). There are several marketing strategies. These
business strategies, based on Volkswagen marketing mix, help the brand to reach its customers
need & find a reliable market to succeed in its model.Volkswagen marketing strategy helps the
company to position itself competitively in the market with the ongoing innovations & changes
and achieve its business goals & objectives.To understand the marketing strategy of Volkswagen
we have to analyse its product, pricing, advertising & distribution strategies

1. Volkswagen Product Strategy

Volkswagen offers several vehicles in different countries. The wide range of products cover from
Luxury to Ordinary class of vehicles in order to match the needs & requirement of different classes
of the industry. All these cars are the product strategy in the marketing mix of Volkswagen.
Depending on the level of localization, features, comfort, size, seating capacity, options, engine
configurations and power several different trims and variants are offered. The company has
invested more than $80 billion for developing electric cars to match the future expectancy of
remodeled automobile industry & continuously innovating its brand model to compete with the
industry.

2. Volkswagen Pricing Strategy

Volkswagen is leading global automobile manufacturer. With 34500 vehicles sold every day,
Volkswagen prices its products competitively for certain developing nations and slightly more
expensively for economies where it is seen as a brand which can command a higher premium.
Psychological pricing is one of the tactics used by Volkswagen to further its pricing objectives.
Hence, the pricing strategy in the marketing mix of Volkswagen is mostly based on competition,
segment, demand, features offered in the car and the geography being served.

3. Volkswagen Place & Distribution Strategy

Volkswagen cars are available almost everywhere throughout the world. Having assembling lines
and manufacturing facilities in several parts of the world. These includes Germany, Mexico, USA,
China, India, Indonesia, Russia, Czech Republic, Portugal, Spain, South Africa, Poland, Slovakia.
After recognizing Indonesia as a top destination for car and van sales, Volkswagen set up a new
plant for $140 million towards the manufacturing of large transport vehicles and multi-vans. In
its latest venture into Algeria, Volkswagen also launched a new production plant there to help
boost localizations levels and make cars cheaper. Volkswagen boasts a truly international
presence and has its distribution well laid it out for the countries it operates in either throughout
the world via company owned dealerships or multi-brand car showrooms.

4. Volkswagen Promotion & Advertising Strategy

Volkswagen has always been forceful with its ad campaigns. As a part of its marketing mix
promotion strategy, Volkswagen has used 360 branding to promote not only the parent company,
but all its cars individually. With higher grade of tensile strength used in its steel, greater depth
and shine of paint, higher craftsmanship of its cabins and better equipment levels has helped
Volkswagen drive ‘higher quality’ as a trait of all of its car and most of its promotions in developing
countries advertised the same. Abuse friendly build and solid construction along with longevity
was advertised in India and helped it gain important sale numbers. Aggressive promotional
activities using social media networks and online platforms including Twitter, Facebook, You Tube
and Instagram help Volkswagen remain at the top of the promotional game as competitors are
increasingly heading into online space. Product differentiation is one marketing tactic used in the
creatives for promotional activities of Volkswagen and safety and German build quality are two
traits used most often in campaigns of its vehicles. Volkswagen also engages with other prominent
brands globally via sponsored events.

Each of these P’s are responsible for the marketing strategy of the company to hit the right
customers on time with prior advantage & to set its regional markets accordingly. Hence, this
summarizes the entire Volkswagen marketing mix.

PESTLE Analysis of Volkswagen

The successes and failures of this multinational automobile giant is based on a number of factors
called (PESTLE). PESTEL is an acronym for political, economic, social, technological, environmental
and legal. These are important forces that affect businesses directly and indirectly. In this PESTLE
Analysis of Volkswagen, we will present a through analysis of all these factors and how they affect
the Volkswagen group in current times and in the near future.

POLITICAL FACTORS AFFECTING THE VOLKSWAGEN

The importance of political factors in the context of business has grown heavily in the 21st century.
Political forces are now increasingly playing an important role in the area of international
business. From international trade relationships to foreign supply chain and manufacturing
partnerships, all of them are affected by the political environment globally in various regions and
in turn affect business potential and performance. Companies like Volkswagen have their supply
and distribution network around the globe. Its supply chain is located over various
markets/regions and political stability in these regions in essential for VW to run its business
successfully. Business friendly regimes and political stability help businesses.

Otherwise unfriendly regimes and unstable political environments can hinder business growth.
Chaos and instability or heavy taxation by governments can lead to loss and business disruption.
The political environments of the Asian markets have remained stable during the recent years
which has led to faster growth of automotive brands including VW and rising demand in these
regions. Geopolitical factors like terrorism also have the potential to affect businesses and their
growth. In some midwestern nations where terrorist organizations are quite active, doing
business can be difficult for international brands including automotive businesses. Other political
changes like USA (the primary market of VW) plans to place certain major tariffs on goods
imported to it from the EU, and in the coming years this tariff may be placed on automobiles as
well or situations like Brexit can also create a situation of uncertainty and give rise to difficulties
for large and global business brands especially affecting their sales. In this way, political forces
have acquired a bigger role in international business in the 21st century. Political oversight has
also grown and automotive brands are under heavier pressure as compared to a decade or two
ago.

ECONOMIC FACTORS AFFECTING THE VOLKSWAGEN

Economic factors may have a direct effect on businesses and they do by affecting demand.
Fluctuations in the economic environment or decline in economic activity can lead to decreased
demand and losses. The world has seen a bitter recessionary period when demand for vehicles
had declined and several major brands had to be bailed out by the government otherwise they
would have gone bankrupt. While the world economy has returned on track, economic
fluctuations in several markets and currency exchange rate fluctuations are also having a toll on
net profits and revenue. During periods of declined economic activity the demand for vehicles is
affected, affecting the sales and revenues of brands like Volkswagen. The recession saw
employment level declining across the globe resulting in reduced purchasing power of the
consumers and low demand for vehicles. At that time Volkswagen, who primarily deal with the
targeted market of social upper class & prefers to drive luxury and semi luxury vehicles expanded
its nature of business beyond the upper classes and dive into the middle classes as well. What is
traditionally known as a ‘poor market’ is currently being considered as a potential market by
Volkswagen.With economy activity returning after the recession, sales and revenue have grown
but currency fluctuations affect profits from time to time. Volkswagen has also survived the blow
from the diesel scandal and just an year later, its sales surged again. High economic activity in
most of its markets have an important role in its higher sales and profits. This shows the direct
relationship between economic forces and the survival of large international business including
those in the automotive industry

SOCIO-CULTURAL FACTORS AFFECTING THE VOLKSWAGEN GROUP

Sociocultural factors are also playing increasingly important role in the growth of the business
industry in the 21st century. Sociocultural forces affect he buying habits and preference of the
customers. Changing social trends change people’s preferences. Sociocultural factors affect both
sales and marketing. While Volkswagen is a well-known name in the automobile industry, when
it comes to luxury vehicles brands such as BMW or Ferrari seem to have the upper hand. This is
primarily because of Volkswagen’s business model which was to branch out and create multiple
luxury vehicle brands. As a result, the primary brand Volkswagen is no longer directly associated
with premium automobile classes. However, at the same time Volkswagen is not recognized as a
cheap automobile brand either. There seems to be need for certain rebranding of their business
personal especially in the eyes of the younger automobile users. It is why brands need to create
their sales and marketing strategies based on their markets and their cultures. Moreover, due to
the changing trends product and sales strategies too need to be updated accordingly. Now, people
are more interested in sustainable products and the sales of electric vehicles has kept rising.
Overall, the role of social-cultural factors the context of business has kept growing

TECHNOLOGY FACTORS AFFECTING THE VOLKSWAGEN GROUP

The world is moving towards automation in every sector and automobile is not far behind either.
Technology has always played a central role in the automobile industry. How successful an
automobile brand is also depends upon how advanced it is technologically. From AI to automated
driving, the automotive brands are in a race to remain ahead of the others and therefore invest a
lot in R&D. VW acquired a stake in German Research Center for Artificial Intelligence (DFKI). At
Audi Business innovation center the focus is on developing ideas for urban mobility of the future.
Across all its brands and business segments, the brand is investing in innovation for higher
customer satisfaction. It is investing in technology to bring more eco-friendly and safer cars to the
market. It has also invested a lot in making its manufacturing and distribution processes
technologically more efficient than the rivals. Overall, the role of technology in automotive
industry has grown central and how much businesses invest in this area determines their level of
success. However, this is not a process that is fully compliant yet and it might take at least a
decade before self-driving vehicles pose a serious enough threat to the automobile industry.

LEGAL FACTORS AFFECTING THE VOLKSWAGEN GROUP

Legal factor too have acquired huge importance in the 21st century. The legal and regulatory
framework has grown tighter and brands face huge compliance risks in all areas from labor to
environment and driver safety. VW was already made to cough up billions in the Diesel scandal
case. The brand was found using defeat devices to escape emission tests. As a result, millions of
VW models had to be recalled and fines to be paid in Billions. Globally, the governments and the
law are using stringent means to prevent any kind of violation by the automotive brands and non
compliance is highly risky. Thus, the overall role of legal factors in the area of international
business and the automotive industry cannot be denied.

ENVIRONMENTAL FACTORS AFFECTING THE VOLKSWAGEN GROUP

Global climate concern is currently one of the most potent sociopolitical issues that all
manufacturers have to deal with. Environmental factors also play a very important role in the
automotive industry. The pollution laws have grown stringent across the world and in some of
the markets there are quite large penalties for brands that do not meet the criteria. The
traditional engine used by automobiles is being rethought and replaced by technology that is
better for the environment. This is a factor that the Volkswagen group will have to implicate within
their vehicles in order to stay relevant to the current market. Now, the brand is focusing on
developing more hybrids and electric vehicles to gain the trust of its customers back. All around
the world and especially In the developed countries, the laws related to environment and
emissions have been made tough which makes it mandatory for brands like Volkswagen to focus
on models that are more environment friendly.

SWOT Analysis of Volkswagen

This comprehensive analysis will cover strengths, weaknesses, opportunities, and threats,
providing a balanced perspective on Volkswagen’s position in the global automotive industry.

Strengths of Volkswagen

1. Strong Brand Identity and Heritage: Volkswagen is a globally recognized brand with a long
history of automotive excellence. Its reputation for producing reliable, high-quality
vehicles has earned it a loyal customer base. The company’s diverse portfolio, including
luxury brands like Audi, Porsche, and Bentley, enhances its market presence and brand
equity.
 2. Robust R&D and Innovation: Volkswagen’s commitment to research and development is a
core strength. The company is a pioneer in automotive technology, particularly in electric
vehicles (EVs) and autonomous driving. Its substantial investment in the MEB (Modular
Electric Toolkit) platform underlines its ambition to lead the EV market, positioning it as a
frontrunner in the transition to sustainable mobility.
3. Global Production and Market Presence: With manufacturing plants and a sales network
spanning multiple continents, Volkswagen has a strong global footprint. This extensive
reach allows the company to mitigate risks associated with economic downturns in
specific regions and leverage growth opportunities in emerging markets.
4. Strategic Alliances and Partnerships: Volkswagen’s strategic collaborations, such as its
partnership with Ford in EV and autonomous technology, bolster its competitive edge.
These alliances enable cost-sharing in R&D, expedite innovation, and broaden market
access, particularly in North America and China.

Weaknesses of Volkswagen

1. Emission Scandal Impact: The 2015 Dieselgate scandal severely damaged Volkswagen’s
reputation and finances. The legal penalties, compensations, and the cost of recalls have
had a lingering impact on the company’s financial health and consumer trust. Despite
efforts to restore its image, the scandal remains a significant blemish on its record.
2. High Production Costs: Volkswagen’s commitment to maintaining high-quality standards
results in substantial production costs. The company’s reliance on premium materials and
advanced technology, while ensuring superior product quality, also limits its ability to
compete on price with other mass-market brands.
3. Complex Organizational Structure: Volkswagen’s vast and intricate corporate structure,
with numerous subsidiaries and brands, can lead to inefficiencies. The complexity of
managing such a large portfolio often results in slower decision-making processes and
challenges in maintaining a unified strategic direction.
4. Dependency on the Chinese Market: While Volkswagen has a strong presence in China,
the world’s largest automotive market, this dependency poses risks. Economic
slowdowns, regulatory changes, or geopolitical tensions in China could significantly affect
Volkswagen's sales and profitability.

Opportunities For Volkswagen

1. Expansion in Electric Vehicles (EVs): The global shift towards sustainable energy presents a
significant growth opportunity for Volkswagen. The company’s aggressive EV strategy,
 including the launch of the ID. series, positions it to capture a substantial share of the EV
market. Expanding its EV portfolio and charging infrastructure could further solidify its
leadership in this segment.
2. Growth in Emerging Markets: Emerging markets in Asia, Africa, and Latin America offer
Volkswagen opportunities to expand its market share. By tailoring its product offerings to
meet the needs and preferences of consumers in these regions, Volkswagen can drive growth
and reduce its reliance on saturated markets in Europe and North America.
3. Technological Advancements in Autonomous Driving: The ongoing development of
autonomous driving technology presents an opportunity for Volkswagen to innovate and lead
in a new market segment. By investing in and adopting cutting-edge AI and machine learning
technologies, Volkswagen can create a competitive advantage in the autonomous vehicle
market.
4. Sustainability and Green Initiatives: With increasing global emphasis on environmental
sustainability, Volkswagen’s initiatives in reducing carbon emissions and promoting
renewable energy use present a valuable opportunity. Strengthening its sustainability efforts
can enhance brand reputation and attract eco-conscious consumers.

Threats For Volkswagen

1. Intense Competition in the Automotive Industry: Volkswagen faces fierce competition

from both traditional automakers and new entrants, particularly in the EV sector.
Companies like Tesla, Toyota, and Hyundai are aggressively expanding their EV offerings,
posing a significant threat to Volkswagen’s market share.
2. Economic Uncertainty and Global Recession: The global economy’s vulnerability to
recessions, trade wars, and currency fluctuations poses a threat to Volkswagen’s sales and
profitability. Economic downturns in key markets, such as Europe and China, could
adversely impact consumer demand for vehicles.
3. Regulatory Changes and Environmental Laws: Stricter environmental regulations,
especially in Europe and North America, could increase operational costs and require
significant investments in clean technology. Failure to comply with these regulations could
result in hefty fines and damage to Volkswagen’s reputation.
4. Supply Chain Disruptions: The COVID-19 pandemic and geopolitical tensions have
highlighted the fragility of global supply chains. Volkswagen’s reliance on a complex
network of suppliers for components, especially semiconductors, makes it vulnerable to
disruptions that could delay production and lead to financial losses.

Volkswagen’s SWOT analysis reveals a company with considerable strengths, including a strong
brand, a commitment to innovation, and a global presence. However, it also faces significant
challenges, such as the lasting impact of the emissions scandal and intense competition in the EV
market. By capitalizing on opportunities in electric vehicles, autonomous driving, and
sustainability, while addressing its weaknesses and external threats, Volkswagen can continue to
thrive in the evolving automotive landscape.

Five Forces Analysis of Volkswagen

1. Bargaining Power of Suppliers

The bargaining power of Volkswagen AG’s suppliers is low. It is because VW has relationship with
a large number of suppliers throughout the world who are scattered in various regions. Moreover,
its suppliers and subcontractors must follow the code of conduct prepared by VW. VW is a large
and financially strong company with a global supply chain and distribution system. The bargaining
power of its suppliers is also low because VW can always switch to new suppliers. However, the
suppliers gain slight bargaining power from the fact that company needs high quality raw
materials. VW is dependent on long term partnership with suppliers who can cater to its needs
responsibly. In this regard apart from training its suppliers, it also rewards the best ones among
them. However, the overall bargaining power of the suppliers is still low.

2. Bargaining Power of Customers

In the 21st century, the bargaining power of customers has increased due to several factors. There
are several options before customers since several brands are selling similar products in the
market. The 21st century customer is a well informed customer. He evaluates every aspect of the
product from quality to safety, environment friendliness and fuel efficiency before buying the
product. Moreover, company’s are spending a lot on marketing and advertising to attracting new
customers. Competition has increased in the premium as well as lower end segment. Each brand
is investing in research and development to bring products that perform better on customers’
expectations. In 2017, VW invested 4.8 Billion Euros in research and development.

There are several factors that are favourable for the customer. Apart from that the size of
individual purchase in the automotive industry matters. Each purchase is sufficiently large to be
considered important. The overall bargaining power of the customers is high.

3. Threat of Substitute Products

The threat of substitute products is high because of the high competition from several brands in
the automotive industry. Apart from these various brands there are other options also which work
as substitutes for Volkswagen products. Other modes of public travel also act as substitutes for
Volkswagen products. The factors that mitigate this threat are VW’s financial strength and brand
image. Its products are stylish as well as of good quality. This has led to higher trust and therefore
reduced threat from the substitutes. The overall threat of substitute products for VW is moderate.

4. Threat of New Entrants

The threat of new entrants in the automotive industry is very low. It is because of the high barriers
to entry making it near impossible for new brands to enter the market. While there is a very large
investment in the infrastructure including manufacturing, marketing, supply chain and
distribution, apart from it expenses related to human resources are also large. Moreover, legal
regulation makes it tough for new brands to enter the market. The overall threat from new brands
entering the market is very low or absolutely negligible.

5. Intensity of Rivalry in the Industry

The intensity of rivalry in the automotive industry is very high. It is for despite the number of
competing brands being very large most of them provide matching products with similar level of
quality and efficiency. It is why most brands invest very large sums in marketing as well as
research and development which enables them to bring new and more efficient technologies to
the market. Overall, the intensity of rivalry in the automotive industry is very high.

Value Chain Analysis of Volkswagen

The value chain includes the entire range of activities from the production to sales and after sales
service. At each stage, value is added to the final product or service and managing the value chain
well helps at managing productivity and performance of the brand. The value chain includes the
primary as well as the support activities. Here is an analysis of the Value chain of Volkswagen
Group.
Primary Activities:

1. Inbound logistics: VW has managed a large and global supply chain where the focus in on
quality and fast tracking production. It is also focusing on sustainability and training its
suppliers to adopt sustainable processes. In 2017, it completed training at around 29,000
supplier locations.
2. Operations: The global production network of Volkswagen consists of around 120
production locations. Europe is the most important production region with 71 locations.
In Germany alone, there are 28 production sites. The Asia Pacific region has five
production locations and North America has five. Apart from it, there are nine locations
in South America and four locations in North America.

Outbound logistics: The cars produced at the manufacturing locations of Volkswagen are shipped
to its dealer network throughout the world for sales.

3. Marketing & Sales: The brand has created a new sales and marketing strategy to excite its
customers that is aimed at exciting the customers on a wholeness level. Its new marketing
slogan is Customer Delight. Apart from that the brand has also adopted a new sales
strategy called “TOGETHER”.
Supporting Activities:

4. Technology: Technology is also a key focus at Volkswagen and the brand is considered an
innovative company. It spends a lot on innovation as well the creation of new technologies
and models. In 2017, it spent 13.13 Billion Euros on research and development.
5. HRM: By the year end 2017 Volkswagen had 642,300 employees working for it. VW has
completely revised its Human resource strategy to align it with its new business strategy.
Now the strategy is to empower its employees for a cultural transformation.
6. Procurement: In 2017, VW set the goal for its procurement team to safeguard the
necessary supplies and to create competitive, innovative products and also to optimise
cost structures. The brand continued to digitise procurement processes and expand
cooperation with its suppliers under the VW FAST (Future Automotive Supply Tracks)
initiative.
7. Firm Infrastructure: The firm has managed a large and global infrastructure that includes
its production facilities, R&D facilities and its corporate offices. Its headquarters are at
Wolfsburg, Germany.

VRIO Analysis of Volkswagen

Resources and Capabilities of Volkswagen Group

1. Large Production Infrastructure

Volkswagen has maintained a very large production infrastructure. In 2017 it produced 10.9
Million units of vehicles. Its global production network consists of 120 production locations. Out
of these, the highest number of production locations are there in Europe. The brand is constantly
enhancing its production concepts and aligning them with new technologies. The competitive
design of its global production network is one of its main strengths.

2. Brand Image and Global Presence

Volkswagen has maintained a very good brand image and a strong global presence. The diesel
scandal might have tarnished its reputation to some extent but the brand has made a great return
and that shows the strength of its brand image. The brand is present in most corners of the world
and two of its largest markets are Europe and Asia Pacific. Its sales in these two regions have
remained the highest.

3. Research and Development Capabilities

The brand has managed strong research and development capabilities and spends a large sum on
research and development. However, investment in R&D is essential for increasing the value of
the organization sustainably. In 2017, its research and development costs amounted 13.13 Billion
Euros.

4. Large and Extensive Supply Chain

Another major capability of the brand is its large and extensive supply chain. The brand has
established a special network of FAST suppliers. FAST is an initiative by VW that aims to make its
supply network future proof. Its goal is to successfully implement innovation and globalization by
increasing the participation of suppliers more intensely and at an early stage. The number of FAST
suppliers increased from 55 in 2016 to 64 in 2017.

5. Large Product Portfolio

Another major capability of the brand is its large product portfolio which is made up of 12 brands
in several of which it has large and controlling stake. They include Volkswagen, Volkswagen
commercial vehicles, Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Scania, Man and
Ducati. A large product portfolio allows VW to cater to the needs of a diverse customer group
raining from the upper end and premium customers to the mid income (middle class) consumers.
6. Human Resource Management & Organizational Culture

The focus of VW on HR management has increased during the recent years. It is working to
empower its human resources and transfer its organizational culture as per the needs of the 21 st
century. The total number of employees at VW in 2017 was 642,300.

Suggestions for Improving the Current Position

Quality Management Framework: Proposed Improvements

Presently, it is highly recommended that the organization should integrate the principles of
innovation-driven quality management. Volkswagen has been known to be one of the first car
manufacturers to integrate the key quality management tools such as the Six Sigma approach,
TQM, and other tools into its quality management framework. However, the incorporation of
multiple regression models to evaluate the end product quality and ensure that it meets the set
quality standards should be seen as necessary. The proposed step will simplify operational
management decision-making at Volkswagen.

Communication Techniques: Recommended Solutions

Currently, it is critical to prompt the use of innovative tools into the SCM processes at Volkswagen.
Although the organization has already established a rather impressive supply chain on the global
scale, the current problems in the miscommunication concerning materials, local standards, and
especially the dialogue with suppliers. The latter poses a particularly difficult obstacle for the
company to overcome since the problem of unreliable suppliers has been one of the issues
affecting the organization to the greatest extent, as the analysis above has shown.

Miscommunication with suppliers is one of the key problems in the SCM established currently at
Volkswagen, as the analysis above has shown. Although the company has undertaken several
measures to prevent similar scandals from taking place in the future, it is critical to build a system
in which the described issue will become impossible or, at the very least, highly implausible. The
focus on incremental innovation as the essential component of the operational management
framework within the supply chain is expected to become the basis for avoiding the instances of
miscommunication in the future.

Integration of Strategic Planning as a Critical Tool

The use of strategic planning should also become an inseparable part of Volkswagen’s SCM and
the operational management strategy, in general. Although the principles of strategic planning
have already been established within the company’s system, their implementation seems to be
hindered by a range of constraints, the pressure of time and inconsistencies within the company’s
supply chain being the most common and frequently occurring ones. Within the context of
Volkswagen’s SCM and specifically operational management, the described change will have to
reflect the processes associated with logistics and especially procurement. As recent studies have
shown, the lack of effective communication with suppliers has affected Volkswagen’s ability to
produce the cars of the required quality.

Thus, a redesign of the operational management processes within the supply chain of the
company are overdue, with data management being the primary area of focus within the SCM
process. The described change will imply the synchronization of Volkswagen’s supply chain and
the subsequent increase in the efficacy of information and materials’ transfer. Consequently, the
issues such as the omission of critical defects in end products, as well as delays in the delivery of
the aid raw materials and the resulting pause in the production process will be avoided
successfully.

The use of the strategic planning method will require Volkswagen to focus on innovative
management as the method of reducing the negative impact that its operational management
entails and following the principles of environmentalism closely. While the organization has
shown the inclination toward following environmentally safe practices after a recent scandal
mentioned above, there has been no remorse displayed by the leaders of Volkswagen, which has
affected the company’s public relations negatively. Therefore, the integration of innovations that
involve information management techniques and quality improvement strategies should be
geared toward a better use of the available resources and innovative tools for minimizing waste.

Changes in Performance Measurement Approaches

The organization will also have to experience substantial changes in its approach toward
measuring its overall performance in the target market. In order to avoid the embarrassment that
the organization faced when trying to game the standards for CO2 emissions and make its
products pass the test under the conditions without which it would have never shown the
necessary results otherwise, Volkswagen will have to develop new performance measurement
standards. The evaluation of the company’s operations and the location of hindrances in the
operational management system, as well as its SC, in general, will be the first step toward the
evaluation of changes.
The next step will need the approach that will lead to minimizing waste, which can also be
achieved by considering some of the innovative tools for reducing the amount of produced waste
in the car manufacturing context. However, of all the steps to be made by Volkswagen in the
framework for performance measurement, the firm should deem the inclusion of the assessment
of sustainable manufacturing process as the crucial one. The identified measure will imply a
twofold analysis, specifically, the estimation of the actual levels of waste and the perceptions of
the subject matter by staff members. It is critical that employees’ perception of waste should
embrace the extent to whichh waste affects the environment and the company’s reputation.

For instance, the KPIs that allow to reflect the current situation concerning the efficiency of the
manufacturing process, to monitor Volkswagen’s operational efficiency, to focus on introducing
incremental innovations, and to gauge the usefulness of choices made in the operational
management and SCM contexts will have to be utilized in the process. The resulting shift in the
evaluation of a company’s performance will encourage an improvement across the supply chain
on a global level.

Financial Projections and the Related Issues: Budgeting

Presently, Volkswagen will have to focus excessively on the management of its R&D processes and
the boost provided for its supply chain in order to maintain its dominant position in the global
market. With the introduction of the standards for innovation-driven management into its
operational management, the company will need to reconsider its current approach toward
managing costs and reshape its budgeting approach, in general.

Specifically, a substantial number of resources will be spent on the promotion of an innovation-

focused management system in the operational management setting and the training of staff
members to ensure that the quality of the end product stays at the set mark. With the application
of the described strategy, the financial assets of the organization are expected to grow despite
the continuous investment into the development of innovative management strategies and the
creation of the platform for it. Volkswagen’s new, innovation-driven approach to operational
management is expected to justify itself financially within the next five years, at most.

It Is believed that the focus on investing in the promotion of innovative management and the
emphasis on the enhancement of R&D within the operational management system will boost the
operational management processes and allows systematizing them. In addition, a change in the
general quality of products is anticipated. With the emphasis on innovation as the cornerstone of
the firm’s philosophy, Volkswagen will implement the operational management and HR
approaches that will encourage employees to acquire new skills and gain new competencies for
managing the key tasks more efficiently. Consequently, the company may experience a significant
increase in produced units, as well as be capable of raising the price per unit without reducing
the pool of potential customers.

It Is highly likely that, without a strong competitive advantage apart from the one that the
organization already has, buyers are going to resort to purchasing cars from other manufacturers
for a more reasonable price. However, combined with an easily recognizable brand identity, the
focus on innovation and the introduction of new features into the range of characteristics that
Volkswagen’s cars possess, the chance of not only retaining loyal customers but also gaining a
new clientele will increase exponentially. The constant increase in the price per unit is justified by
the investment in developing innovative features of the established products with memorable
and easily recognizable brand image and identity.

While the described projections might seem somewhat unrealistic, they are based on the current
revenue of Volkswagen. Therefore, the company will be able to eliminate the problems associated
with the management of time and prevention of defects in car manufacturing. Consequently,
together with the quality of produced vehicles, a rise in the levels of users’ safety will be observed.
The described change will occur simultaneously with the increase in the extent of staff members’
proficiency and professionalism due to the focus on innovative thinking and innovation-driven
operational management.

Conclusion
Due to stiff competition in the global automotive industry and the problems in environmental
awareness and communication with its customers that Volkswagen has recently experienced, the
firm will require an approach rooted in innovation management and the incorporation of
incremental innovations into its design. Thus, the quality of products will rise exponentially,
whereas the dialogue between key stakeholders within Volkswagen’s supply chain will allow
reducing the incidents of miscommunication.

Future Outlook
Volkswagen’s Strategy 2018, a growth strategy launched in 2007 under former CEO Martin
Winterkorn. Winterkorn said the goal of this program was to make Volkswagen “the world’s most
profitable, fascinating, and sustainable automobile manufacturer.” After Volkswagen reached 10
million unit sales in 2014, Volkswagen was on their way to achieving these goals. However, when
Toyota released their sales numbers on October 2015 for the first three quarters of the year, they
had fallen behind (Forbes).
TOGETHER- Strategy 2025 was created under current CEO Matthias Mueller to keep up with the
rapidly changing automotive industry but also as a result of what they refer to as “the diesel issue”
(Volkswagen). They also acknowledge that it will take “enormous efforts to resolve” the effects of
this scandal. This initiative has been developed by over 250 experts from across the company.
TOGETHER-Strategy 2025 was built upon the foundation of Strategy 2018 and evolved from this
as a result. The basis of this initiative “unites the knowledge, ideas, and vision of the company
and its employees” (Volkswagen). This program is meant to be a long-term, forward looking
strategical and tactical movement. The “TOGETHER” in the title stands for the company’s way of
thinking, which will keep the company moving forward (Volkswagen).
Reference:

1. https://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/
2. https://www.volkswagenag.com/en/career.html
3. https://www.ft.com/content/d5a3b0b8-18c0-11e8-9376-4a6390addb44
4. https://www.pwc.at/de/publikationen/branchen-und-wirtschaftsstudien/eascy-five-
trends-transforming-the-automotive-industry_2018.pdf
5. https://mission-statement.com/volkswagen/
6. https://www.itstimeforbusiness.com/volkswagen/
7. https://howigotjob.com/mission-statement/volkswagens-mission-and-vision-
statement/
8. https://strategicmanagementinsight.com/mission-statements/volkswagen-
mission-statement/
9. https://notesmatic.com/an-analysis-of-volkswagen-ags-mission-and-vision-
statement/