What Volkswagen's Plans for an Entry-Level EV Mean for the Market

Late 2018, Volkswagen (VW) made waves when it was reported that the company intends to sell an entry-level, all-electric vehicle for under €20,000 (approximately $23,000). The vehicle will potentially be a hatchback based off of its upcoming I.D. concept series. VW’s entry-level would cost roughly $7,000 less than a 2019 Nissan Leaf and $12,000 less than the base Tesla Model 3. No official announcements on production or vehicle performance have been made, but speculation and price point raise some questions—how does VW plan to keep costs low, and how will the vehicle stack up to its competitors? 

Cost-Cutting Opportunities 

This entry-level cost point is just one part of VW's strategy to have 50 battery EV models in production by 2030. Some of these models will be based on VW’s I.D. concept series. In order to bring these to market, VW plans to standardize vehicle production by using a skateboard chassis the company is calling a modular electric vehicle kit (MEB). MEB will be used for at least four production vehicles based on the VW I.D. concept series; a hatchback, sedan, crossover, and minibus. Of note, the modular platform has been designed with space for inductive charging pads for if/when wireless charging technology goes mainstream. VW anticipates it will be the basis for over 10 million vehicles and reduce costs through scale and simplicity. 

How Will MEB Vehicles Compare? 

VW has not yet made any official announcements on the specifics of its upcoming I.D. series vehicles. However, they have released details on the modular electric platform (MEB), allowing us to draw some comparisons to vehicles currently on the market. I.D. vehicles are expected to have scalable battery packs, offering a range between 200 and 350 miles and early models will accommodate 100 kW charging. Most likely, VW’s $23,000 offering will have a lower range in the near term than MEB’s announced range. For instance, the base model of the 2019 Nissan Leaf at $29,990 has an estimated range of 125 miles, and Tesla’s base Model 3 is targeting $35,000, with an estimated range of 220 miles. 

These comparisons beg the question, how is VW getting costs that low? Some possible answers are:

1. VW is likely subsidizing vehicle production to stay relevant, like most established automakers
2. The entry-level vehicles will probably have relatively low ranges, competitive with Leaf
3. VW will bring battery costs down with scale
   

While it is likely a mix of all three strategies, VW’s reliance is likely greatest on the latter. VW has provided some details regarding the design of the MEB platform. It is brand agnostic, and improves cell energy density through the use of higher nickel content and a higher voltage electrolyte. The battery design also has a slow degradation email. VW has also placed orders for $48 billion in battery contracts. Such aggressive investments paired with this pricing strategy suggests the company is making Tesla-like bets on the future EV market, a rarity among established automakers.