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Diess, who joined from BMW where he helped pioneer a ground-breaking electric vehicle, has since been appointed CEO of Volkswagen Group, a multi-brand empire that includes Audi, Porsche, Bentley, Seat, Skoda, Lamborghini and Ducati.

Carmakers have failed to mass-produce electric cars profitably largely because of the prohibitive cost of battery packs which make up between 30 percent and 50 percent of the cost of an electric vehicle.

A 500 km-range battery costs around $20,000, compared with a gasoline engine that costs around $5,000. Add to that another $2,000 for the electric motor and inverter, and the gap is even wider.

Even electric start-up Tesla's cheapest car, the Model 3, is on sale in Germany at 55,400 euros, priced just below a base model Porsche Macan, a compact SUV. In the United States, Model 3 prices start at $35,950.

VW believes its scale will give it an edge to build an electric vehicle costing no more than its current Golf model, about 20,000 euros, using its procurement clout as the world's largest car and truck maker to drive down the cost.

"We are Volkswagen, a brand for the people. For electric cars we need economies of scale. And VW, more than any other carmaker, can take advantage of this," a senior Volkswagen executive told Reuters, declining to be named.

The carmaker's electric-vehicle budget outstrips that of its closest competitor, Germany's Daimler, which has committed $42 billion. General Motors, the No.1 U.S. automaker, has said it plans to spend a combined $8 billion on electric and self-driving vehicles.

Renault-Nissan-Mitsubishi said in late 2017 they would spend 10 billion euros by 2022 on developing electric and autonomous cars.

"On a 2025 view, we expect Volkswagen to be the number one electric vehicles producer globally," UBS analyst Patrick Hummel said. "Tesla is likely to remain a niche player."

STRICTER TESTING

VW's test cheating using engine management software - "defeat devices" - resulted in the introduction of tougher pollution tests which revealed in 2016 and 2017 that emissions readings across the industry were up to 20 percent higher under real-world driving conditions compared with lab conditions.

This has raised the bar on the auto sector's efforts to cut emissions of carbon dioxide, blamed for causing global warming.

EU lawmakers in December agreed a cut in carbon dioxide emissions from cars of 37.5 percent by 2030 compared with 2021 levels. This was after the European Union forced a 40 percent cut in emissions between 2007 and 2021.

"This goal is no longer reachable using combustion engines alone," Volkmar Denner, chief executive of Bosch, the world's biggest auto supplier, said about the 2030 proposals.

Every gram of excessive carbon dioxide pollution will be penalized with a 95 euros fine from this year onwards.

Strategy firm PA Consulting forecasts VW will face a 1.4-billion-euro penalty for overstepping average limits in Europe by 2021, while Ford and Fiat-Chrysler face fines of 430 million euros and 700 million euros respectively.

Daimler, BMW, PSA, Mazda and Hyundai will miss their 2021 average emissions targets, PA Consulting forecasts. Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover are on track to meet their goals.

PA Consulting's forecasts were extrapolated using 2017 registration data for each powertrain type and consumer buying trends, but do not include more recent sales trends.

Ford, VW and BMW said they would meet their targets because of a push to sell more hybrid and electric cars in 2018. Daimler said it aimed to meet the targets, PSA said it would respect the targets while Fiat-Chrysler declined to comment. Mazda had no immediate comment, while Hyundai did not respond to a request for comment.

Carmakers have struggled to lower their average fleet emissions because of a shift in customer taste toward heavier, bigger SUVs (sports utility vehicles), which make it harder to maintain the same levels of acceleration and comfort without increasing fuel consumption and pollution.

SUVs are now the most popular vehicle category in Europe, commanding a market share of 34.6 percent, according to JATO Dynamics. Even Porsche, which makes lightweight sportscars, relies on sports utility vehicles for 61 percent of sales.

As the industry-wide scale of excessive emissions prompted Brussels to push through tougher laws late last year, VW executives concluded that purely electric cars were the most efficient way to meet carbon dioxide goals across its fleet.

This was the point of no return, according to executives, when the company made the final electric investment decisions and committed to staying the course it had plotted after dieselgate.

"After evaluating alternatives, we opted for electromobility," chief operating officer Ralf Brandstaetter told Reuters about VW's deliberations in November.

(Additional reporting by Ilona Wissenbach and Agnieszka Flak; Editing by Pravin Char)

Source : https://ca.finance.yahoo.com/news/bet-everything-electric-inside-volkswagens-070347008.html

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