Volkswagen AG…shaping the future together

Team Renaissance Consulting,

University of Ibadan, Nigeria

2Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

The Volkswagen Group needs to be more focused, sustainable – and systematically geared to profitable growth

STRONGER COMPETITION

from old and new competitors

TECHNOLOGICALMEGATRENDS

impact business models and

customer needs

MORE COMPLEXENVIRONMENT

as a result of stricter emissions

legislation and emerging markets

HIGHER CAPITALREQUIREMENTStriggered by the need to develop

new core competencies

Paris Accord andEnvironmental Legislation

1

Strategy, Structure and Cost Optimization

2

E-Mobility Strategy3

Product Portfolio Rationalization

4

Strategic Sourcing of Cobalt in Africa

5

How the Automotive Industry Is Changing Prioritization of Issues(Urgency, Financial Impact,Ethical Implications)

3

The next wave of legislation to tighten emission standards for car engines kicks in 8 months, failure to comply exposes the group to fines as high as €600 million per annum

NPV: € (2,744.48) million; IRR: -3%

Invest a capital sum of €19,500 million

in building a new MEB technology1

1. MEB = Modular Electric Drive Matrix

Can accommodate current (and future) tightening of environmental legislation

Passed all Tucker’s 5 Question Model except one—profitability

There’s an opportunity for VW AG to benefit from potential car sales in the US which is likely to increase profitability.

0.00

100.00

200.00

300.00

400.00

500.00

600.00Volkswagen AG Brands with average CO2 emission values

CO2 g/km

99g/kmBenchmark

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

4

There is a major growth opportunity in smaller vehicles; they already account for more than 30 percent of global sales and could reach more than 30 million vehicles in 2020

VW AG should continue producing the

volume segment; albeit with a low-

cost approach

Limited Body Types

Reduced Car Variants

Partner with localplayers

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

5

As regards the various functions of the 3 new segments; centralization and decentralization need not be considered mutually exclusive

Centralize only those decisions involving important economies of scale and decentralize everything else

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

6

VW needs to strongly consider decisions that would have effects on its immediate EV efforts and on its long-term goals of producing 3 million EVs by 2025

Timespan

Short-Term Recommendation

Long-TermRecommendation

Development Alternatives

Outsource production over the span of 3 years while intensifying EVB research and development

Supplier Alternatives

Panasonic

Volkswagen EVB Plant

Construction of separate EVB plant to ensure production demands are met and quality control

of supply chain

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

7

VW AG generates 80% of their profits from fewer than 20% of the brands they sell, while they lose money or barely break even on many of the other brands in their portfolios -especially the volume segment

VW AG should liquidate

declining, weak, and marginally

profitable brands

Perform a Brand Audit

Prune thePortfolio

LiquidateBrands

Grow the core brands-20%

0%

20%

40%

60%

80%

100%

Q1 Yr. Forecast Q1 Yr. Forecast Q1 Yr. Forecast Q1 Yr. Forecast

% of total Direct Factory

Overheads

% of Gross Profit % of Total Gross Margin % of Sales Value

The volume segment is characterised with high sales

value, huge overheads with minimal profit

Volume Premium Super Premium

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

In reducing the price of volume range in these key emerging markets,

VW AG needs to deploy these four dynamic strategies

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Seven emerging economies—China, India, Brazil, Mexico, Russia, Turkey, and Indonesia are expected to contribute about 45% of global GDP growth in the coming decade.

Understand local perceptions

Capitalize on the ‘GermanEngineering’ cachet

Create price ladders

Prepare for the currency volatility

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

9

VW AG is facing a break in supply agreement of Cobalt from the world’s largest supply area—Democratic Republic of Congo

Shift focus from Cobalt suppliers to

EVB suppliers (Chinese) and start

exploring new battery technology

Approach Panasonic to negotiate EVB supply deal

Establish long term supply with Chinese firms

Start developing new battery technology

ETHICAL ACTIONS1. Release an anti-child labour press statement.

2. Engage the compliance team to ensure the supply chain is properly vetted.

Introduction

Paris Accord E-MobilityStrategy, Structure and Cost Optimization Product Portfolio

Cobalt Sourcing

10

These 5 key recommendations will offer the Volkswagen group a unique success story and position it for a leading role in shaping the auto-mobility for future generations

Questions

RecommendationsIssues

Paris Accord and EnvironmentalLegislation

Strategy, Structure and Cost Optimization

E-Mobility Strategy

Product Portfolio Rationalization

1

2

3

4

• Invest a capital sum of €19,500 million in buildinga new modular electric drive matrix (MEB) technology

• Continue producing the volume segment albeit with a low-cost approach, centralize only decisions involving

• Outsource its EVB production to Panasonic while working on building its own manufacturing plant for the long term

• Evaluate the performance of each of the brands of the current portfolio based on profitability/brand scale and liquidate weak brands

• Shift focus from Cobalt suppliers to EVB suppliers and start exploring new battery technology

Strategic sourcing of cobalt in Africa

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