In fiscal year 2014, the Volkswagen Group again expanded its production network and increased its global production volume by 5.0%, exceeding 10 million vehicles for the first time. Productivity increased by 4.2% year-on-year despite the continuing difficult conditions in many markets. In the South American market in particular, declining volumes impacted productivity trends. However, this was offset by the increasing unit sales in China and the Group’s systematic implementation of its production system.

“Production 2018” strategy

The vision of our “Production 2018” strategy is to build the world’s most powerful and most fascinating automotive production system. To make this a reality, four core objectives were defined. In all Group brands and all regions, a systematic effort was made in fiscal year 2014 to excite our customers, lift the earnings contribution, expand production capacities and make production more attractive to employees. We further developed the 13 challenges that were defined in 2011 so that we will be able to achieve our goals by 2018, and are systematically implementing the measures formulated for each of these challenges. Our strategy ensures that production is prepared for future demands for the long term, by continually improving production processes and connecting them across all of our locations.

Production locations

In November 2014, the Group’s latest location in China was opened with the gearbox plant in Tianjin. The Volkswagen Group’s global production network thus comprised 118 locations at the end of the reporting period. This figure takes into account a reworked and standardized numbering system, whereby the increase resulted in particular from commercial vehicles. At the end of 2014, the production network consisted of 69 passenger car, commercial vehicle and motorcycle locations as well as 49 powertrain and component sites.

Share of total production 2014 in percent

With 72 locations for vehicle and component production, Europe remains our most important production region; 29 of these sites are located in Germany alone. The Asia-Pacific region is playing an increasingly important role, with 29 locations. The number of production sites in North America (four) and South America (nine) remained unchanged in the reporting period. The Group operates four locations in Africa.

Since the end of 2014, we have been constructing a new plant in Wrzesnia, Poland, for the Volkswagen Commercial Vehicles brand, in addition to the existing plant in Poznan. Production of the Crafter will begin there in the second half of 2016, with an annual capacity of 100,000 vehicles.

To achieve our ambitious growth objectives for the Chinese market, the foundations for a new vehicle plant in Qingdao with a capacity of 300,000 vehicles a year were laid in November 2014. In addition, a decision was made to expand the capacities of the Yizheng and Ningbo plants by 150,000 vehicles a year each.

In the US market, the Volkswagen Group is systematically working toward achieving the unit sales goal for 2018 of one million vehicles and is further expanding its industrial commitment. Assigning production of the new midsize SUV to the Chattanooga location marks an important step in this direction. In addition, it was decided that the long wheelbase Tiguan will be produced in North America for the US market from 2017.

The growth markets of the ASEAN region are of major importance for the Volkswagen Group. With a population of approximately 600 million and continued rapid economic growth in many countries, this region offers high potential for demand. The automotive markets in Thailand, Indonesia and Malaysia in particular are already well developed; they represent the largest vehicle markets in the region.

Together with our Malaysian partner DRB-Hicom, we have been locally producing the Passat for the Malaysian market in Pekan since 2011. The Jetta and Polo models are also assembled at this location. We are gradually increasing vertical integration at the factory and are reviewing the addition of other successor models.

In Indonesia, we have been assembling six models for the Volkswagen Passenger Cars, Audi and Volkswagen Commercial Vehicles brands locally since 2009, together with our partner Indomobil. The aim is to further extend our involvement, by expanding our product portfolio and increasing vertical integration.

Our Ducati brand has been present in Thailand since 2011. Since the end of 2014, vehicle frames have also been produced and painted at the production facility in Amphur Pluakdaeng; local engine assembly has also begun. This additional factory expansion phase means that six Ducati models are already being produced in Thailand.

The Volkswagen Group also has a presence in the ASEAN region with its Scania brand through partnerships. In order to take advantage of the region’s potential and further expand our market share there, we are examining additional possible alternatives for local production.

New start-ups and production milestones

In 2014, the Volkswagen Group implemented a total of 60 vehicle start-ups in 32 locations across 16 countries; of these, 21 are new or successor product start-ups, while the other 39 start-ups were attributable to derivatives and product upgrades.

In January 2014, production of the new Golf saloon began in Mexico – our third core production location for the new generation of the bestseller alongside Europe and China; production of the Golf Estate followed in December. In February, the start of production of the Golf Sportsvan in Wolfsburg rounded off the Golf family. Series production of the XL1 also began in February in Osnabrück. In addition, we extended the vehicle range at the plant in Foshan, China – which started operating in 2013 – to include the Audi A3 Sportback and the Audi A3 Saloon, and at the Ningbo plant to include the ŠKODA Octavia and the Volkswagen Lamando. In addition to the e-up in Bratislava, the start-up in Wolfsburg of the second purely electric series vehicle – the e-Golf – in March marked another milestone. In July, Audi began production of the third generation of the TT in Györ, Hungary. Another significant event for the Volkswagen Passenger Cars brand was the production start for the new generation of the Passat at the Emden plant in August. The same month saw production of the sixth generation of the ŠKODA Fabia start in Mladá Boleslav.

In addition to the new start-ups, there was a lot of start-up activity surrounding gas-powered models for the Volkswagen Passenger Cars, ŠKODA and SEAT brands, as well as for plug-in hybrid vehicles for the Volkswagen Passenger Cars, Audi and Porsche brands.

In the engine and transmission plants, there were over 30 start-ups in 2014 for new and more efficient powertrains and for expanding local production. At the end of 2014, the assembly of 1.5 l diesel engines specially designed for the Indian market began in Pune; the new assembly line has an annual capacity of 100,000 engines. In the Polkowice plant in Poland, production of engines on the basis of the new Modular Diesel System began. The Kassel location has developed a new hybrid transmission and a hybrid module for the Audi A3 e-tron and the Golf GTE. The opening of the new gearbox plant in Tianjin means that Volkswagen is now also able to manufacture next generation direct shift gearboxes in China for the local market.

The Volkswagen Group again celebrated some important anniversaries in 2014: at the beginning of October, the 200 millionth Group vehicle rolled off the production line. In just under 15 years, the number of models produced by the Group has thus doubled (100 million vehicles produced by 1999). At the same time, the 2.5 millionth vehicle was recorded on the Group-wide MQB platform. In February, Volkswagen celebrated the two millionth Tiguan manufactured worldwide. In September, Audi produced its two millionth SUV from the Q3, Q5 and Q7 family. The five millionth SEAT Ibiza left the production facilities at the Martorell location at the end of September. The Volkswagen Group also celebrated two production anniversaries with both of its Chinese joint ventures in 2014. FAW-Volkswagen produced its 10 millionth vehicle and Shanghai-Volkswagen its 12 millionth vehicle since it was established 30 years ago.

Flexibility in production

The modular toolkits allow us to design our production sites to be flexible. They generate synergy effects that enable us to reduce capital expenditure and make better use of existing capacities. With these toolkits we have created the conditions for using the production sites for several brands at the same time, and are implementing these systematically in terms of plant capacity utilization. For example, the ŠKODA Kvasiny location in the Czech Republic will also produce a vehicle for the SEAT brand starting in 2016. Of the 40 passenger car locations, 19 are now already multibrand locations.

As the complexity of products increases, a factory must work at optimal capacity so as to continue manufacturing high-quality products that give customers maximum benefits at competitive prices. This is all made possible by the standardization of production processes and operating equipment at an early stage. Consistent construction and design principles that are clearly defined in the form of product standards form the basis for this. We introduced “concept consistency” to enable single-line production of different brands at a single production location. This ensures that common design principles, joining techniques and joining sequences are applied across the brands’ development and production areas.

The Group’s production system

To help us become the world’s most powerful and most fascinating automotive production platform, we must optimize and standardize our production processes. The Group’s value driven, synchronous production system provides us with the necessary methodologies and instruments for this. Our goal is to establish this Group production system throughout the world at all brand and regional locations so as to continually improve for the long term.

We have already made substantial progress toward this. In the future, we will turn our attention to further strengthening the Group’s production system and increasing its presence. As a first step in this direction we are measuring the extent to which the methodologies and instruments are being implemented at the locations. The target/actual comparisons reveal action areas that are laid down in a project plan and worked through in a structured manner in the second step. As a synchronous Company, we are including all business areas so as to systematically optimize processes.

The increasing volume and complexity of our models and the size of our production network with its global supplier and customer structures also require maximum performance from logistics. We will meet the increasingly demanding conditions with our cross-brand logistics concept. This concept will enable us to shape all our material and information processes for supplying the production locations and delivering vehicles to our customers even more efficiently across the Group. In addition to internal processes for providing materials to the assembly lines, the focus of our logistics concept is on upstream transportation and logistics processes between the locations and our suppliers, and the transportation chain for vehicles from the factory to customers.

Efficient production

We are committed to reducing the Group’s five fundamental environmental indicators by 25% by 2018 compared with 2010. Production is significantly contributing to our becoming the world’s most sustainable automobile manufacturer.

We use synergies within the Group to make our production more ecological. In Group-wide environmental working groups we discuss strategic issues, prepare action packages, organize efficient data capture and track the extent to which our goals have been met. We are also planning activities across the brands to train employees in the areas of environmental protection and energy efficiency. Systematically sharing knowledge between the production locations allows us to benefit from our employees’ global expertise. Cross-location analysis teams are developing methods to systematically reveal potential.

We document our ecological measures around the world using a system-based program. In 2014 for example, there were over 1,500 energy-related and environmental measures to improve production processes for passenger cars and light commercial vehicles. As a result, we reduced CO2 emissions by approximately 195,000 t. At the same time, this exchange of best practices shows that we are aligning economics with ecology; these measures save us over €30 million per year.

In addition to the Group-wide activities, the brands also established their own frameworks for ecological restructuring that reflect the specific features of their corporate culture and brand image. For example, the Volkswagen Passenger Cars and Volkswagen Commercial Vehicles brands are pursuing all ecological measures related to efficient use of resources and lowering emissions in production in their holistic “Think Blue. Factory.” program. “Think Blue. Factory.” began in 2011 under the motto “More sustainability – less environmental impact” and is part of “Think Blue.”, the Volkswagen Passenger Cars brand’s holistic initiative promoting ecological sustainability. The ŠKODA brand’s “GreenFuture” initiative is an ambitious program to achieve the Group’s environmental targets; SEAT calls its program “ECOMOTIVE Factory”. Audi established a framework for its commitment to the environment with the “ultra strategy”, Bentley launched the “Environmental Factory” in the reporting period, while Scania combined its ecological activities under the concept of “Ecolution”, with MAN doing the same under its “climate strategy”.

The following examples from the reporting period demonstrate the successful implementation of ecological activities in production:

In the Salzgitter plant, a decentralized chip wringer was installed that will generate annual savings of €400,000. Removing chips from the coolant-lubricant emulsion directly at the production machines saves transportation and disposal costs for the emulsions, which are fed back into the machine after the chips have been separated. A second decentralized system is already being built at the Salzgitter plant.

In the Chemnitz plant we introduced more precise pump control for the cooling lubricant filtration system. This measure not only generates annual savings of 700,000 kWh of energy, but also around €70,000.

The introduction of new factory ventilation technology at the Pune location in India could lead to savings of 430 MWh of energy and 1,500 m3 of water a year. Simulations were carried out at other production sites, for example with the central factory ventilation technology, and optimally adapted to the production conditions so that interactions can already be taken into account in the planning phase.

At the Polkowice location in Poland, we used energy value stream design for a connecting rod and thus achieved a quickly convertible energy efficiency potential of 10%. This corresponds to annual savings of €39,000.

Energy supplies to our production sites are increasingly generating lower emissions. By using geothermal energy at the Györ location in Hungary, the Audi brand reduces CO2 emissions by 23,000 t a year. Electrical energy from renewable sources fuels 50% of the ŠKODA plant in Mladá Boleslav, reducing annual CO2 emissions by 200,000 t.