VW Accelerates Electric Car Effort With $40 Billion Investment -- 2nd Update

Berlin -- Volkswagen AG plans to invest around $40 billion over the next five years to develop electric vehicles, self-driving cars and Uber-like mobility app services in the clearest sign yet that auto makers are betting the future of their industry on the new technology.

Volkswagen's drive to produce electric cars and self-driving vehicles comes as the entire industry pivots from a century-old business model of building gas-powered cars for the family to producing fleets of electric cars that in just a few years are expected to drive themselves and be part of roaming robot taxi services.

Critics have dismissed the vision of a driverless automotive world as pie in the sky, but the multibillion-dollar gamble by the industry's biggest players demonstrates that Volkswagen, Ford Motor Co., General Motors Co., Toyota Motor Co., and others are committed to develop the new technology and quickly get the new vehicles on the road.

"The car is being reinvented," Volkswagen Chief Executive Matthias Müller said on Friday, after the company's directors approved his five-year budget, adding that the plan "creates the framework to make Volkswagen number one world-wide in electric mobility by 2025."

The Wolfsburg, Germany-based car maker is planning total direct investment of around $85 billion by the end of 2022. The company will continue to invest in conventional auto technology, but the new budget shows that the focus is now on electric vehicles.

Volkswagen said it would retool its plant in Zwickau in eastern Germany to become its first electric car plant in Europe. It is expected soon to announce that will produce electric cars at its U.S. plant in Chattanooga or its Puebla, Mexico factory.

The company has already said it would invest EUR12 billion to build electric cars in China. That investment isn't included in the overall budget, but is financed directly from Volkswagen's business in China.

U.S. auto makers are also beginning to redirect investment capital away from conventional engines and into electric cars.

Ford has said that by 2022 it would slash spending on conventional engines by a third, around $500 million, and invest instead in development electric and hybrid vehicles. That comes on top of about $4.5 billion in planned spending to develop more than a dozen new electric vehicles. GM plans to launch 20 electric vehicles world-wide over the next six years.

But those plans pale in comparison to Volkswagen, which has historically been the largest spender in the global auto industry. Under its "Roadmap E" umbrella, Volkswagen plans to produce at least one electric or hybrid version of each of its 300 models world-wide by 2030 and is taking bids for battery cell orders worth $59 billion to meet is production needs.

The industry still faces considerable hurdles as it goes electric.

The global market share of electric vehicles is growing fast, but is only around 1.2% so far this year, according to EV-Volumes.com, which tracks global electric vehicle sales. In the U.S., battery electric and plug-in hybrid vehicles account for around 2% of new car sales.

The share of electric cars in a national market often depends on the availability of incentives such as government-backed discounts and traffic rules that give preference to electric cars over conventional gasoline and diesel-powered vehicles.

In Norway, one of the most aggressive supporters of electric vehicles, battery electric and plug-in hybrids have achieved a 35% share of the new car market.

Potential buyers of electric have often been put off by the high price tag and the fear of running out of power on the road.

Batteries are becoming more powerful and able to travel longer distances and car prices are coming down as volumes rise and battery prices fall. Volkswagen has said that it will launch a battery electric compact car by 2020 that will sell for less than $40,000, around the same price as its popular Golf today.

The industry is struggling to provide enough charging stations to accommodate the millions of electric vehicles car makers are planning to launch over the next decade. Ford, BMW AG, Volkswagen and Daimler AG, which makes Mercedes-Benz cars, have created a joint venture called Ionity to build a European network of 400 fast-charging stations by 2020.

Car makers have little choice but to step up production of electric cars. From China to California, regulators are imposing ever tougher emissions targets, outright driving bans for cars with conventional combustion engines, or imposing quotas on the share of electric cars in a company's overall fleet.

"This is why we have to complete the transformation toward producing more electrically powered vehicles," said Frank Witter, Volkswagen's finance chief.

Nathan Allen in Barcelona contributed to this article

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

November 17, 2017 11:28 ET (16:28 GMT)