(Bloomberg) -- Volkswagen AG is significantly raising investment plans for the next five years in the race to keep up with the shift to electric and self-driving cars, as well as new services in connected cars.

  • VW will spend 44 billion euros ($50 billion) through 2023, part of a push for now more than 50 fully-electric models by 2025. This is 10 billion euros more compared with last year’s planning round. VW is launching upscale electric Porsche and Audi models due to go on sale next year to keep up with Tesla Inc. as well as more affordable vehicles under VW’s I.D. sub-brand starting in 2020.

Key Insights

  • The outlay on technology, about a third of total investments also into property, plant and equipment to 2023, is part of a deep efficiency overhaul to free up funds for electric cars and boost software know-how. VW has pledged to rein in bloated costs and boost economies of scale.
  • Even as investments balloon, VW reiterated plans to reduce capital expenditures to 6 percent of sales from 2020. During 2017, the measure declined to 6.4 percent.
  • A more agile setup is critical as the industry deals with slowing economic growth, trade barriers and uncertainty for a post-Brexit Europe. German peers Daimler AG and BMW AG have cut their outlook, while Toyota Motor Corp. and General Motors Co. reported strong results.
  • Under new Chief Executive Officer Herbert Diess, signing off on his first investment plan, VW has become more open on cooperations to share cost. Talks with Ford Motor Co. are progressing well, while the U.S. company will remain a competitor, Diess said.

Market Reaction

  • VW has declined 11 percent since the beginning of the year. Tesla, valued at $58 billion, is edging closer to VW’s capitalization of 73 billion euros and has overtaken BMW.
  • Trading multiples for global car manufacturers are low, reflecting investor skepticism they can keep up with rapid changes to their business model that’s coming under fire from new competitors plotting inroads into connected and shared vehicles.

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  • Global light vehicle sales fell 3.8 percent in October as a drop in demand in China weighed as well as a slow recovery in Europe from production bottlenecks weighed, according to LMC Automotive. China and Europe are by far VW’s largest sales regions.
  • VW’s 21 percent market share in the U.K. puts the carmaker at great risk in a potential no-deal Brexit unsettling consumers, Bloomberg Intelligence analyst Michael Dean said in a note.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann

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