PESTEL Analysis of Volkswagen

Volkswagen is a leading vehicle manufacturer headquartered in Wolfsburg, Germany. The company is a family of ten brands that include Volkswagen, Volkswagen Commercial Vehicles, ŠKODA, SEAT, CUPRA, Audi, Lamborghini, Bentley, Porsche and Ducati. It is well known worldwide as a global vehicle brand. The company has operations across more than 140 countries. It is the second largest car manufacturer in the world after Toyota based on annual net sales.

The Volkswagen group delivered 9.2 million vehicles in 2023. Toyota, which is the largest automobile company in the world based on annual unit sales, is its nearest rival. Apart from its wide product portfolio, the Vilkswagen group is also known for its strong focus on innovation and safety. The company has established a large manufacturing network of 114 production facilities worldwide located in 19 European countries and 10 countries in the Americas, Asia and Africa. In 2023, the company generated a total of 322.3 billion Euros in net sales. It is also strongly focusing on electrification of its product lineup and has released several electric models.

Operating in the global automobile sector has become highly challenging due to several factors. In this pestel analysis, we will take a look at how the macroeconomic forces affect the operations of the Volkswagen group internationally.

POLITICAL

Political factors can have a significant impact on automobile businesses operating at a global scale. There are several such political factors that affect operations, sales and profitability of automobile businesses. International relationships, import and export laws as well as taxation and other government policies can have a significant impact on automobile businesses like Volkswagen and their operations. Geopolitical factors can also severely impact business and supply chain operations. For example, since the Russian invasion of Ukraine, scores of Western companies have left Russia.

Volkswagen has also exited Russia since the invasion and sold its local assembly plant. Political stability is crucial for business and supply chain operations in any part of the world. Some more political factors that affect business performance include international relationships, trade policies, trade agreements etc. Good relationships between two nations also help companies in each market do business in the other. Volkswagen is performing well in almost all leading international markets because of Germany’s strong relationships with other nations.

ECONOMIC

Economy and economic factors have a prominent role in terms of business overall and in some sectors including the automobile sector, their impact can be very significant. Good economic performance is key to the growth of the automobile sector. After everything came to a standstill during the pandemic, most of the significant markets worldwide have experienced a rebound in economic activity leading to growth in automobile sales. The global economy has also been performing well since the pandemic.

Due to improving economic activity in most markets, Volkswagen experienced growth in sales and revenue. Europe and America remained the primary drivers of the impressive growth the company registered in 2023. However, in China also the company experienced a growth of 2% in deliveries despite a challenging market environment.

Overall, the impact of economic factors is highly significant for automobile businesses and therefore the economic environment of key markets is an important consideration for them in terms of business strategy. When the level of economic activity in a market is high, and employment level is higher, people tend to spend more on buying vehicles.

SOCIAL

Sociocultural factors have also acquired a significant importance in terms of business across all sectors. Businesses have to focus more on their social image to maintain a good brand image and customer loyalty. Sociocultural factors are important in terms of business and marketing. Worldwide the demographic composition of the global population has changed a lot over the past several years. Companies like Volkswagen are now focusing on catering to the changing needs and preferences of the modern consumers. Their main target market are the millennial generation consumers.

Society and culture affect consumer behavior and shape their needs and preferences. It is why they need to be considered as significant in terms of strategy making. Localization helps grow demand and popularity in several markets. Especially in the Asian markets, localization is very important for businesses like Volkswagen for achieving superior sales growth. Apart from these, some other key areas where Volkswagen is increasing its focus to create a more desirable social image include inclusion and diversity.

ENVIRONMENTAL

Having a strong environmental focus is now essential for automobile businesses. Volkswagen has also strengthened its focus on sustainability and environment friendly operations. The Volkswagen group is committed to becoming a carbon neutral company and continuously reducing its consumption of primary resources. The company has set a goal of achieving complete carbon neutrality by 2050. It has also accelerated its efforts to achieve net carbon neutrality at all its product sites by 2040. Compared to 2018, it plans to reduce greenhouse gas emissions by 90% by 2040.

The company has reduced water use by 24 percent, waste by 75 percent, and VOC emissions by 68 percent per vehicle from 2018 to 2023. It has named its ambitious environmental plan regenerate+. Further, the Volkswagen group has increased its focus on conservation of environmental resources and the development of a circular economy. Sustainability has become key to maintaining a good brand image in the automobile industry as globally, the level of environmental awareness has grown. The Volkswagen Group is actively seeking ways to identify and reduce its carbon footprint throughout its business operations and supply chain.

TECHNOLOGICAL

Technology is among the primary drivers of sales growth and higher competitiveness in the automobile sector. Latest technological changes including digitalization, AI, automation and other technologies are driving sweeping changes across the automobile sector. Another key area where the automobile companies have increased their focus is electrification. Volkswagen is also investing heavily in expanding its fleet of electric cars. Since delivering the first ID.3 in 2020, the company has already delivered more than half a million vehicles from this family. It has set ambitious targets related to expansion of its all electric fleet for the future. The company expects 70% of its total net revenue in Europe to be generated from the sales of all electric vehicles. For the US and China, it has set a target of 50% over the same period.

The company has also placed a strong focus on digitalization and autonomous driving solutions. As a part of its plan to become a software oriented mobility provider, the company is digitalizing vehicle development, sales and production. It is also offering Chatgpt in many of its models. The aim is to continuously improve customer experience with the help of digital solutions.

LEGAL

Legal compliance in all the applicable areas is also of critical importance for automobile businesses. The 2015 Diesel scandal cost Volkswagen dearly as the company incurred hefty fines in billions. Lack of compliance generally proves very costly for automobile businesses. According to Wikipedia, the Diesel scandal had cost Volkswagen Group more than 33 billion euros in fines, settlements and buybacks by 2020. While noncompliance generally results in hefty fines, it also hurts the market image of the business.

From labor to product safety and quality, automobile businesses like Volkswagen are required to remain compliant in all areas. These laws can vary from market to market and the company must stay compliant in all the markets where it operates to avoid fines and loss of image. While Volkswagen has emerged from the scandal, it has maintained a strong focus on legal compliance since then to avoid such a situation repeating in the future.

Conclusion:

The international business environment is full of opportunities and challenges. While political changes can bring both opportunities and challenges for automobile businesses, the critical importance of technological, economic and environmental factors cannot be ignored either. Volkswagen has maintained a strong focus on innovation since it is the key driver of faster growth in the automobile sector. It has also invested heavily in the digitalization of its production and supply chain network as well as other critical aspects of business operations to improve productivity and maximize customer satisfaction.

Volkswagen has set ambitious plans in terms of sustainability for the future. However, it will remain a challenging area for the company. Apart from that, it will also need to maintain a strong focus on legal compliance to avoid a situation like the emissions scandal from repeating.