Mr Diess said VW will have "leapfrogging cost advantages" thanks a wider rollout of its "MQB" platform, or car-building architecture, which helps the different VW brands to share parts, technology and assembly sequences.
"[Tesla] is a competitor we take seriously. Tesla comes from a high-priced segment, however they are moving down," Mr Diess said, referring to the $35,000 Model 3, which enters production this summer. "It's our ambition, with our new architecture, to stop them there, to rein them in."
Mr Diess was speaking at what VW called its "first" annual press conference — an odd phrasing for a company that is 80 years old. What it signified is that Mr Diess, a cost-cutting executive poached from BMW in July 2015, is drawing a clear line between the VW brand and the VW Group. The line between them was often hazy under Martin Winterkorn, the former chief executive who led both until 2015.
To enhance the value of the VW brand, it has started to separate certain group-level activities from the brand's balance sheet. Under the new structure, 2016 operating profit was €1.6bn, instead of €1.9bn as reported, but margins were 2.1 per cent rather than 1.8 per cent.
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The challenge for the VW brand's transition towards electric mobility is to ramp up investments in both electric and combustion engine technology, all the while cutting costs overall.
"We foresee substantial financial burdens looming," said Arno Antlitz, chief financial officer for the brand. However, he said the increased capital spending would be "overcompensated" by savings from the "future pact", a deal reached last November to cut €3.7bn in costs and reduce headcount by 30,000 globally by 2020.
Mr Diess said VW would become a leader in three stages: from now until 2020, the focus is on improving profitability by cutting costs, enhancing productivity by 25 per cent, and achieving operating margins of at least 4 per cent. The second stage, until 2025, is to take the lead in electric, connected cars, while boosting margins to 6 per cent. After 2025, VW will double down on mobility solutions.
Central to VW's plan is a "substantial reduction of complexity in the new line-up," said Mr Diess. If VW can achieve that it will be on a solid foundation to sell electric cars at the price of today's diesel models, for profit. "The entire electric fleet," he added, "is to be profitable from the very beginning."