Volkswagen to consider expansion outside Europe if Ukraine war continues

Carmaker has already moved some production to the Americas and China. Photo / Getty Images

Volkswagen will consider expanding production outside Europe if the conflict in Ukraine continues, its chief executive has said, as the continent's largest carmaker struggles to secure crucial supplies from parts manufacturers in the war-torn country.

"For sure, we have to think about additional investments in the United States and overseas," Herbert Diess told reporters on Tuesday, although he cautioned that "the specific effects [of the war] cannot be conclusively assessed at the present time".

Russia's invasion of Ukraine has forced VW to idle some plants in Germany, due to a lack of specialised wiring harnesses being delivered from Ukraine. Diess said the lack of such parts remained the "dominant constraint" on production. A 150-person strong task force at VW's headquarters in Wolfsburg is working on identifying alternative suppliers.

Diess said VW had already shifted production of up to 100,000 vehicles to the Americas and China, in order to bypass supply bottlenecks.

Last week, Diess told the Financial Times that a prolonged war could have a larger impact on the global economy than the coronavirus pandemic, which shut car plants for weeks.

His latest comments come as VW joined local rivals BMW and Mercedes-Benz in delivering higher annual profits despite selling far fewer vehicles, as it prioritised the production of expensive high-end models during the semiconductor crisis.

Pre-tax profits at the VW exceeded €20bn in 2021, almost double that of the previous year, and higher than the €18.4bn posted in 2019, when it sold 2.4mn more cars.

VW's Porsche brand continued to lead the group in terms of profitability, achieving a 16.5 per cent margin, driven in part by record deliveries in China. The company said it still planned a partial initial public offering of the luxury carmaker towards the end of this year.

VW's management expects to use some of the proceeds from a Porsche flotation to accelerate the company's electrification strategy and help build six European battery plants, which executives say will probably be too costly for the carmaker to finance on its own.

The company confirmed on Tuesday it was in "final discussions" about building a battery factory in Spain, to add to ones being constructed in Sweden and Germany. "We have started the scouting process for a fourth location in eastern Europe already," Diess said.

Separately, Sweden's Northvolt, which VW has invested in, said it would build its third European battery factory in the German state of Schleswig-Holstein, with the hope of starting production towards the end of 2025. The plant would have the capacity to provide batteries for roughly 1mn vehicles a year, the company said.

Despite a surge in nickel, cobalt and lithium prices, VW's chief financial officer Arno Antlitz said the company expected profit margins from battery electric cars to reach parity with combustion engine models "earlier than we originally thought". This would happen in part because raw materials used in conventional cars would rise too, he said.