Official: Volkswagen delays new flagship

Volkswagen's next-generation Phaeton flagship will be a high-profile casualty of the German car-maker's confirmation it will reduce spending by 1 billion euros or eight per cent next year to help pay for an expected multi-billion-euro hit from its emissions cheating scandal.

The news is particularly embarrassing for Volkswagen Group, which was rumoured to have delayed the next-generation Phaeton as early as August - a month before the Dieselgate scandal broke – but then announced in October it would be an all-electric model capable of driving up to 500km.

Now Volkswagen Group CEO Matthias Muller, who previously said the Phaeton is a necessity for Asian markets, says the next Phaeton will be among a number of cancelled or postponed capital investments now deemed unnecessary.

"We are operating in uncertain and volatile times and are responding to this", said Muller in Wolfsburg on Friday (November 20) after a meeting of the company's Supervisory Board.

"We will strictly prioritize all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed."

Listed among them was the new Phaeton, which will be "delayed" as part of the cost-cuting measures.

"The aim is for planned investments in property, plant and equipment, investment property and intangible assets, excluding capitalized development costs (capex), to be capped at approximately EUR 12 billion next year. The average figure for the previous planning period was about EUR 13 billion per year," said VW.

At the same time, Muller announced VW's intention to increase expenditure on alternative drive technologies by about 100 euros million next year.

"We are not going to make the mistake of economizing on our future. For this reason we are planning to further increase spending on the development of e-mobility and digitalization," he said.

"The core focus will be on rapidly developing electric drive systems for the Volkswagen Passenger Cars, Audi and Porsche brands," said VW.

According to Volkswagen, most of the capex is earmarked for new products, the continuing rollout and enhancement of the modular toolkits, and the completion of ongoing investments to expand capacity.

"Examples include product start-ups such as the next-generation Golf, the Audi Q5, the new Crafter plant in Poland, as well as upfront expenditures for the modular electric toolkit (MEB). Approximately 50 per cent of capex will be spent on the Group's 28 locations in Germany."

However, VW also outlined which investments will be delayed or cut back, as it suggested it would last month.

"For example, construction of the planned new design center in Wolfsburg is being put on hold, saving approximately EUR 100 million. In addition, the construction of a paint shop in Mexico will be reviewed," it said.

"In the model range, the successor to the Phaeton – a pure-play electric model – is being delayed."

Muller warned of further potential cuts to come in following weeks, possibly involving staff reductions.

"We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk," he said.

"Together with the works council representatives we will make every effort to keep our core workforce on board."

While VW's joint-venture operations in China are not affected by the announcement, it's understood VW's supervisory board, managers and labor leaders are in heated debate about how to reduce costs of Europe's biggest car-maker, which encompasses 12 brands and more than 300 models.

Volkswagen traditionally publishes its investment plans for the next several years, and prior to Friday's announcement had more than doubled its annual investment spending since 2008.

However, last week it revealed figures only for 2016 and did not specify the proportion of R&D, which last year accounted for about a quarter of overall planned spending of 85.6 billion euros over 2015-2019.