How Volkswagen plans to outsell Tesla

The world's second best-selling automaker has set it's sights on becoming a major name in the EV game, investing $37 billion in its electric car program.
Between its production plans, new lineup of plug-in vehicles, and $2 billion marketing plan for emissions free cars, this car giant could easily be on its way to outselling Elon Musk .
Visit Business Insider's homepage for more stories .

Following is a transcript of the video.

Narrator: Whether you're a fan of the company or not, it's impossible to deny that Tesla is king of the EV market. In 2019, the company sold close to 368,000 vehicles worldwide, in the U.S. accounting for 78% of all electric car sales. But one company still makes a strong case for being a serious challenger to Tesla's crown: Volkswagen. With a multi-billion dollar bet on electric mobility, VW's goal of manufacturing 28 million electric vehicles by 2028 might seem wildly ambitious. But the legacy automaker has a plan set in place for taking control of the EV market - and it just might work.

Just five years ago, Volkswagen found itself paying billions of dollars in fines for programming its diesel engines to cheat emissions tests. But as the dust still settles from its "Dieselgate" scandal, Volkswagen is now spending money on more than just repairing its reputation.

Volkswagen Group is investing almost $37 billion into its electric car program, the most out of any manufacturer. Over $12 billion will be spent specifically at the company's Volkswagen brand. With this investment, Volkswagen's flagship marque has already projected to produce 1 million EVs annually by 2023. By 2025 they expect a total of 3 million amongst all of Volkswagen Group brands.

While this sounds like overpromising from a group that sold only 140,000 plug-in cars last year, Volkswagen already has the tools and manpower at its disposal. The automaker recently converted its Zwickau, Germany plant to solely produce the all-electric Volkswagen ID.3 that will be released in Europe this summer. By 2021 that factory is projected to pump out 330,000 cars a year. EV production is then planned to spread to its Dresden, Germany factory, it's Tennessee plant, and two of its China factories. By 2022, Volkswagen Group will be producing electric vehicles at eight different factories on three different continents.

But as impressive as these numbers are, they are still optimistic estimates based on Volkswagen's size and wallet. In terms of actual sales, Tesla still dominates the EV world. The question is, can they continue?

First, let's put aside stocks. Tesla's recent valuation of over $100 billion is definitely jaw-dropping. The company even surpassed Volkswagen for the first time. But, Tesla sells a fraction of the cars Volkswagen does and generated only 10% of Volkswagen's revenue in 2019. In addition to its namesake brand, Volkswagen Group has a dozen other profitable product lines, as opposed to Tesla's one that's yet to record an annual profit.

Still, what Tesla has accomplished with its limited resources deserves plenty of praise. Its sales last year were more than its previous two years combined. The company now projects to sell 500,000 cars in 2020, a 36% increase over last year. If its sales continue growing at that rate, they could be shipping over 2 million cars a year by 2025!

But 2020 might not be so certain for Tesla. First of all, it's year-over-year U.S. numbers are already beginning to slow, with annual revenue down 14.9% from 2018. Fortunately, a number of European countries along with China helped pick up the slack, but the U.S. is still the company's biggest market. And as of January 1st this year, that oh so attractive $7,500 tax credit that comes with buying an electric car has fully expired for the company.

In addition, American sales of the Model S and Model X are on a downward trend, and being outsold by luxury competitors in Europe. Now the industry is about to see an influx of potential rivals to the Model 3, the cornerstone to Tesla's success. While Tesla is certainly vamping up it's production capacity, it could find itself having to depend on a declining Chinese auto market to continue its growth.

Production wise, Tesla's Fremont factory is capable of pumping out nearly 500,000 cars a year. The now up and running Shanghai plant is said to have a capacity of 150,000 Model 3s and will begin Model Y production mid-2020. But the development of its Berlin factory, a major component to its growth in Europe, has already been challenged by local environmentalists. Meanwhile, where the production of the Roadster, Cybertruck and Semi will happen remains unknown. Although this level of production is admirable for an independent company, can it keep up with a conglomerate already established on multiple continents?

So we've heard the numbers, but what exactly can we expect to see on Volkswagen's showroom floors? Well, in addition to the luxury models already released through its Audi and Porsche lines, for mainstream buyers its Volkswagen brand has multiple options planned for the next few years, two being released as soon as 2020. This includes the ID.3 hatchback, exclusively available in Europe, and sold for around $30,000, and the ID Crozz planned for the U.S. in late 2020 and priced at around $40,000 before the $7,500 tax credit still available to Volkswagen EVs. The years to follow will include the ID Roomz SUV, the ID Buzz based on its iconic Microbus, and more!

But Tesla has plans of its own to expand its limited lineup. Deliveries for its Model Y SUV begin as soon as this March. However, some analysts worry it could "cannibalize" sales of the already successful Model 3, which they believe is responsible for the drop in sales of the luxury-end Model S and Model X. The Model 3 and Y are similarly-priced, very similar looking, and it will eventually sell for over half the price of Tesla's only other SUV, the Model X. Tesla's upcoming Roadster supercar and Cybertruck pickup certainly have impressive potential, but the company may need a lower-priced entry level car to keep up with someone like Volkswagen who has the pockets to produce cheaper vehicles.

Volkswagen's biggest challenge may be marketing. Tesla famously claims not to spend a dime on advertising, but has come to dominate the electric car market through YouTube, social media, with its unmistakable "cool factor".

But Volkswagen knows it will have to reach its potential buyers somehow. The automaker is already putting the majority of its marketing efforts into the EV sector. This includes a $2 billion ad campaign promoting zero emissions vehicles. And it's clear other mainstream automakers are taking note. About 45% of all car commercials during this year's Super Bowl were for EVs. Even on a local level, the most difficult area to reach, Volkswagen will match funds for its dealerships' commercials and ad campaigns, supplying up to even 75% of the resources.

But as the company's 2015 scandal remains fresh in the heads of many environmentalist car buyers, we'll have to see if America and the rest of the world is buying VW's reformed attitude toward greener cars.

While it's fun to marvel at rivalries about to take place between brands like Volkswagen and Tesla, the status of the EV market is less exciting. Electric vehicles accounted for only 2.5% of all global car sales in 2019. These next few years will feature a huge increase in the number of EV models available to buyers, but we could just as easily see a scenario with automakers building a huge surplus of cars with no one to buy them. However, Tesla has already paved the way for automakers like Volkswagen, and shown what can truly be accomplished in a market that is still anyone's game.