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VW eyes components savings to fund shift to EVs

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Volkswagen Group is counting on savings from its newly-reorganized components division to free up more funds to invest in electric-vehicle technology.

VW bundled its fragmented parts operations into a single unit effective Jan 1. The business will measure itself against the auto industry’s leading suppliers, VW purchasing chief Stefan Sommer said Friday in Salzgitter, Germany. Former ZF Friedrichshafen CEO Sommer became VW’s board member with responsibility for procurement on Jan. 1.

VW reorganized the components operations as part of a plan to invest 3.8 billion euros ($4.3 billion) by 2023 on electric- vehicle parts.

The business is an in-house supplier of components including engines, gearboxes, electric drive systems, steering systems and seats. It is spread across 61 factories worldwide and employs about 80,000 people. The unit has an overall business volume of some 35 billion euros ($40 billion) and generates about 22 billion euros in annual revenue, according to its head, Thomas Schmall, making it one of the world’s largest vehicle-component makers.

VW targets an operating return on sales of about 6 percent for the division and might publish more key figures starting next year, Schmall said.

Cost savings stemming from a 2016 labor pact reached 750 million euros and will widen to 2 billion euros ($25 billion) by 2025, VW said.

VW will cut another 6,000 jobs by 2023 after eliminating 1,900 positions since 2016 through voluntary measures such as early retirement, Scmall said

Divesting operations

Sommer said the overhaul is designed to tackle a fundamental industry shift toward battery-powered vehicles and will include fading out or divesting operations with weak future prospects, Sommer said.

Ending production of parts such as heat exchangers frees up funds for projects such as a plan to build mobile charging stations in Hanover, Germany, in 2020.

VW is also open to forming partnerships with other parts-makers to generate economies of scale, Sommer said.

The automaker is in “intensive talks” over the possible production of battery cells for e-cars, which would require a large-scale investment, he said.

VW’s push to fold its parts business into a single unit follows similar moves by rivals. But unlike Toyota or General Motors, for example, VW doesn’t plan a partial or complete spin-off of the business, Sommer said.

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