Europe's largest automaker, Volkswagen, aims to defend its market share against Chinese challengers with the launch of the electric Polo. Speaking on Wednesday at the production start in Martorell, Spain, Volkswagen brand CEO Thomas Schäfer described the event as a milestone for the company. The vehicle, which is being built alongside its sister model from Cupra, demonstrates Volkswagen's vision for the future of e-mobility in the volume segment: 'Less complexity, lower costs, and a clear focus on customer needs.'

Group CEO Oliver Blume stated that the company is investing several billion euros to transform Spain into a central hub for electromobility. Alongside the Martorell plant, the battery production facility of the Group's subsidiary PowerCo in Seville plays a particularly crucial role. 'Even as global competition intensifies, we believe in our home market of Europe,' Blume said. He underscored this with a call to policymakers: 'Now is the time to capitalize on this momentum with a clear 'Made in Europe' strategy. It must ensure a level playing field and strengthen Europe's industrial base.'

Customers have been able to order the electric Polo since late April, though the 25,000-euro entry-level variant is not yet available. Analysts believe the vehicle gives Volkswagen a strong chance to capitalize on the currently high demand for electric cars. Bernstein analyst Stephen Reitman called it a major step forward for Volkswagen. 'The fact that the car is only entering production now shows how long it takes for Volkswagen to bring a vehicle to market, especially when compared to the pace of Chinese manufacturers.'

DEMAND FOR ELECTRIC CARS CURRENTLY HIGH

Volkswagen is benefiting from the current surge in demand for electric vehicles. High fuel prices resulting from the conflict in Iran and government incentives in Germany and other European countries have recently boosted sales. In Germany, approximately one in four new cars sold is now electric, while their share across the European Union has risen to about one-fifth. However, foreign automakers have been the primary beneficiaries so far, as they offer more options in the lower price segment, according to Constantin Gall, an industry expert at consultancy EY.

According to VW brand chief Schäfer, demand since the sales launch has exceeded initial projections. Bernstein expert Reitman noted that the critical factor now is how quickly Volkswagen can bring the sub-25,000-euro Polo variant to market. While orders opened in late April, only the version priced at nearly 34,000 euros has been available thus far. 'At this price point, sales potential remains limited.'

The car is vital for Volkswagen for several reasons: first, the Group aims to boost EV sales to meet European Union fleet CO2 emission targets and avoid costly fines. By utilizing lithium iron phosphate (LFP) batteries in the entry-level version, the company should be able to sell the vehicle with reasonable profitability, said Daniel Schwarz, an analyst at Bankhaus Metzler.

Furthermore, Volkswagen has pooled the resources of its three volume brands—Volkswagen, Seat/Cupra, and Skoda—for this project. A total of four small cars will emerge from the initiative: the Polo, the Cupra Raval, the slightly taller VW ID.Cross, and the Skoda Epiq SUV. Seat/Cupra is leading the project, and the cars are being manufactured in Spain. In total, the Group is saving 600 million euros through this collaboration, according to brand CEO Schäfer.

(Report by Christina Amann, edited by Myria Mildenberger. For inquiries, please contact our editorial team at Berlin.Newsroom@thomsonreuters.com (for politics and economics) or Frankfurt.Newsroom@thomsonreuters.com (for companies and markets))