Research and development risks
For this risk category, the likelihood of occurrence is classified as high (previous year: high) and the potential extent of damage is classified as medium (previous year: medium).
The most significant risks from the QRP result from the inability to develop products in line with demand and requirements, in particular with regard to software and the associated architecture, as well as e-mobility.
Risks arising from research and development
The automotive industry faces a process of transformation with far-reaching changes and our future business success depends on our ability to develop new, attractive and energy-efficient products, especially in view of e-mobility, software and digitalization trends.
The automotive industry has undergone and continues to undergo a fundamental transformation process as customers are increasingly focusing on lower fuel consumption and exhaust emissions as well as automotive digitalization of products and services. Our economic success and competitiveness depend on how swiftly we are able to tailor our portfolio of products and services to changing customer needs.
Due to the intensity of automotive competition and the pace of technological developments, we face potential risks in connection with our ability to timely recognize market trends as well as to develop and commercialize new products and services in line with demand and to improve existing products and services within shorter timeframes. Research and development focuses on alternative propulsion technologies, such as electric and hybrid systems, as well as Range-Extended Electric Vehicles. A key focus is also on Software Defined Vehicles (SDV) and their digital architecture components, including connected services, autonomous driving functions and AI (Artificial Intelligence)-supported applications.
Given our multinational presence, product research and development activities are required to adhere to stringent legal requirements applicable in the jurisdictions where we conduct business. Increasingly rigorous emission and fuel regulations – like China’s C6 and Europe’s Euro7 – combined with complex and varied test procedures and cycles (such as WLTP) and homologation requirements, add to operational challenges. Such legislation is continuously evolving, becoming more specific across different jurisdictions which affects on our workflows and raises risks for our research and development.
Research and development of our complex products, software and services entails considerable risk, including uncertainties regarding the widespread adoption by consumers and available infrastructure for such products. These risks also include uncertainties regarding recognizing the market trends and achieving performance targets in timely fashion and in line with cost specifications while satisfying the quality standards and regulatory requirements. Furthermore, there are uncertainties regarding the level of investments required for achieving certain development milestones. For example, starting in 2027, all electric vehicles in North America are expected to use the “North American Charging System” network.
As the Volkswagen Group transitions from traditional automotive manufacturing to offering sustainable mobility solutions, our vehicles are moving from mainly mechanical systems to software-defined platforms. If we are not advanced enough in introducing these software platform concepts, this might result in reduced demand for our products and a decline in our market share. Successfully making this transition depends on building strong technological and organizational capabilities, including hiring skilled programers and therefore creates personnel risks for the Volkswagen Group.
We are investing in e-mobility, battery technology and digitalization to expand our electric vehicle range. These initiatives involve significant risks, including regulatory uncertainty, government support, consumer adoption, charging infrastructure, investment requirements, cybersecurity threats, supply chain constraints, and scaling production and organizational capabilities to meet market demand, which we may not be always be able to manage successfully.
Furthermore, research and development trends, along with global political conditions and requirements, may evolve in an unforeseen manner that does not align with our strategy.
We have in the past entered and, in the future, will continue to enter into significant cooperative arrangements to research and develop new technologies. Such investments, which can require significant resource commitments, have in the past not been and, might in the future not be successful and we might not achieve our objectives or targeted return on investment and might not be able to recoup or benefit from these arrangements. Our competitors may be able to develop better solutions and manufacture the resulting products more rapidly, in larger quantities, with a higher quality or at a lower cost which could result in decreased demand for our products and loss of our market share.
In the course of our research and development activities, we face a heightened risk of unintentionally infringing on third‑party patents, which could lead to legal disputes, financial liabilities, or delays in bringing products to market.
To reduce this risk, we conduct thorough analyses of third-party industrial property rights, increasingly also in relation to communication technologies.
We conduct research such as trend analyses and customer surveys and examine the relevance of the results for our customers. We counter the risk that it may not be possible to develop modules, vehicles, or services – especially in relation to e-mobility, digitalization and software – within the specified time frame, to the required quality standards, or in line with cost specifications, by continuously and systematically monitoring the progress of all projects.
We regularly compare the results of all of these analyses with the respective project targets; in the event of any discrepancies, we introduce appropriate countermeasures. Our end-to-end project organization fosters cooperation across all of the departments involved in the process, ensuring that specific requirements are incorporated into the development process as early as possible and that their implementation is planned in good time.
Risks and opportunities from the modular strategy
In production of vehicles across our Group, we use, among other things, modular toolkits, that while allowing for flexible, cross-brand utilization, entail a greater risk of production disruptions. We are continuously expanding our modular toolkits, focusing on future customer requirements, legal requirements and infrastructural requirements.
With higher volumes of vehicles produced using modular toolkits – such as the Modular Transverse Toolkit (MQB) for different vehicle dimensions, and the Modular Electric Drive Toolkit (MEB) and Premium Platform Electric (PPE) for electric drive vehicles – there is a greater risk that supply chain disruptions such as part shortages could affect a large part of our vehicle offerings. Furthermore, non-identified malfunctions or issues with these components or lack of prompt response after the identification thereof would impact a wider range of our brands’ vehicles.
The MQB is an extremely flexible vehicle architecture that was created to allow conceptual dimensions – such as the wheelbase, track width, wheel size and seat position – to be harmonized throughout the Volkswagen Group and utilized flexibly. Other dimensions, for example the distance from the pedals to the middle of the front wheels, are always the same, ensuring a uniform system in the front end of the car. Thanks to the resulting synergies, we are able to reduce both development costs and the necessary one-time expenses, as well as manufacturing times. The toolkits also allow us to produce different models from different brands in varying quantities, using the same equipment in a single plant. This means that our capacities can be used with greater flexibility throughout the entire Volkswagen Group, enabling us to achieve efficiency gains.
We have also transferred this principle of standardization with maximum flexibility to the MEB and PPE concepts developed for all-electric drives. The synergies and efficiency gains offered by the modular toolkit strategy are enabling us to bring e-mobility into mass production worldwide with the MEB- and PPE-based vehicles. In future, we aim to reinforce these synergistic effects by combining the MEB and PPE in the Scalable Systems Platform (SSP).