Volkswagen weighs up ending Polo production in Europe

Volkswagen (VW) is reviewing the fate of the VW Polo car in Europe before the end of the decade as emissions regulations start to push up the cost of producing petrol-engine cars.

A decision on whether to replace or extend the life of the Polo, or phase it out completely, is an “open discussion” within the company, according to two people with knowledge of its strategy.

“It’s all up in the air, and there’s nothing definite yet,” said one person with direct knowledge of the decision-making process.

VW has been making the Polo since 1975, and the current version of the model runs until 2026.

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The Polo, which sells from about €20,000, is the second best-selling Volkswagen model globally, and is made in plants in Brazil, China, Spain and South Africa. Its demise would be the latest affordable model to disappear in Europe, coming after Ford ceased making the Fiesta earlier this year.

Carmakers are increasingly struggling to manufacture smaller cars profitably, in large part because of rising engine costs as a result of emissions regulations.

As they ramp up production of electric vehicles (EVs), most auto groups in Europe are planning to wind down petrol models by 2035, when the European Union plans to ban the sale of new petrol and diesel cars.

Faced with a wide variety of predictions for the share of electric vehicles in new car sales by 2030, many carmakers are pondering whether there will be enough demand for petrol models at the end of this decade to invest in new models altogether.

Cars are typically produced in life cycles of seven years, after which they are renewed or scrapped.

[ EVs costing €25,000 made in Europe expected to be on the roads by 2025 ]

VW already plans to make a €25,000 electric model in 2026, called the ID2. It is planning an even cheaper €20,000 battery car for the end of the decade, provisionally known as ID1, which could fill the gap if the Polo were to be taken off the market.

In Europe, VW has committed to making the electric ID2 in Martorell, a plant near Barcelona owned by its Spanish Seat brand. Analysts expect the ID1 to be produced at its plant in Pamplona, where the Polo is manufactured, but the group has yet to comment on plans for electric models at the facility.

The current discussions centre on the Polo’s future in Europe, where more stringent, hence expensive, Euro 7 engine regulations are due to come into force later this decade.

The industry has warned that the new rules will disproportionately push up the price of small petrol cars because of the need to absorb the cost of expensive emissions reduction systems.

Sigrid de Vries, head of European auto industry trade body ACEA, said the new rules “add up cost, and is to the detriment of being competitive”, particularly against the Chinese players threatening to import cheaper EVs into Europe.

Both people familiar with VW’s strategy said that Euro 7 costs would play a big role in determining whether the model endured.

The carmaker was hoping there would be sufficient leeway in the Euro 7 regulations that would enable VW to maintain the Polo on the market “a little bit longer”, said one of the people.

“It depends on what will be the volume globally,” another person added, adding that sales in South America and other markets might mean the model continued for longer.

VW declined to comment. – Copyright The Financial Times Limited 2023