Annual Report 2023

Group Management Report

Research and Development

Forward-looking mobility solutions with brand-defining products and services would be unthinkable without innovation. This makes our research and development work essential for sustainably increasing the value of the Company.

Together with our Group brands, we have launched measures based on our NEW AUTO strategy to link development activities across the Group. At the heart of this is an efficient, cross-brand development alliance characterized by a close network of our experts, collaboration on an equal footing, an innovative working environment and the pooling of development activities. The aim is to make use of synergies across the Group and act as a role model for the environment, safety and integrity. The development alliance plays a major part in driving the Volkswagen Group’s transformation and helping to make it fit for the future.

In view of this strategic focus, we concentrated in the reporting year on continuing to develop forward-looking mobility solutions, establishing technological expertise to strengthen our competitiveness, expanding our range of products and services and improving the functionality, quality, safety and environmental compatibility of our products and services.

CO2 fleet emissions

We use the strategic indicator of CO2 fleet emissions in Europe and the United States to evaluate the effectiveness of our measures to reduce CO2 emissions emitted by our vehicles.

The Volkswagen Group’s new passenger car fleet in the 27 EU member states excluding Malta but including Norway and Iceland (EU27+2) emitted an average of 119 g CO2/km (WLTP – Worldwide Harmonized Light Vehicles Test Procedure)1 in the reporting year in accordance with the statutory measurement bases. The statutory target is 122 g CO2/km (WLTP)1. The Volkswagen Group thus more than met the EU’s CO2 fleet target. All figures are subject to confirmation of CO2 data within the scope of official publication by the European Commission. The targets will be tightened as from 2025: the European Commission has thus set a target of a 15% reduction in CO2 emissions compared with 2021, which corresponds to a CO2 target of less than 100 g CO2/km for our new passenger car fleet in the EU. A reduction of 55% has been defined for 2030, equivalent to a CO2 target of less than 50 g CO2/km. We assume that our new passenger car fleet in the EU will meet the target for 2025 and more than meet the target for 2030. A CO2 reduction target of 100% for passenger cars has been set for 2035.

The Volkswagen Group’s new light commercial vehicles fleet in the EU emitted an average of 187 g CO2/km (WLTP)1 in the reporting year according to the statutory measurement bases. The statutory target is 204 g CO2/km (WLTP)1. The Volkswagen Group thus more than met the EU’s CO2 fleet target. All figures are subject to confirmation of CO2 data within the scope of official publication by the European Commission. The targets will be tightened as from 2025: the European Commission has thus stipulated a 15% reduction of CO2 emissions compared with 2021, which corresponds to a CO2 target of less than 180 g CO2/km for our new light commercial vehicle fleet in the EU. A reduction of 50% has been defined for 2030, equivalent to a CO2 target of less than 105 g CO2/km. We assume that our new light commercial vehicles fleet in the EU will meet this target for 2025 and more than meet the target for 2030. A CO2 reduction target of 100% for light commercial vehicles has been set for 2035. In the United Kingdom and Switzerland/Liechtenstein markets, the Volkswagen Group’s new passenger car fleet met the statutory requirements for the reporting year. The Volkswagen Group’s new light commercial vehicle fleet met the statutory requirements for the reporting year in the United Kingdom but fell just short of those for Switzerland.


in grams per kilometer (WLTP)

CO<sub>2</sub> emission of the Volkswagen Group's European (EU27+2) new passenger car fleet (bar chart)
1 The European Commission switched its calculation of CO2 fleet emissions from NEDC to WLTP in 2021.
2 Subject to confirmation of CO2 data within the scope of official publication by the European Commission.

In the United States, the emission pool – comprising the Group brands Volkswagen Passenger Cars, Audi, Lamborghini, Bentley and Porsche – commits to the Greenhouse Gas (GHG) and Corporate Average Fuel Economy (CAFE) regulations. Due to a model year – the accounting period used in the USA – differing in length from the calendar year, internal calculations are used to determine the figures for the current and preceding model year. The average GHG CO2 value (internal data as of September 2023) for the passenger car and light commercial vehicle fleets in model year 2023 is 133 g CO2/km (model year 2022: 142 g CO2/km). The statutory target is 122 g CO2/km (model year 2022: 136 g CO2/km). Compliance with the statutory requirements of the GHG and CAFE regulations together with externally acquired credits enabled the Volkswagen Group to comply with the applicable requirements – subject to recognition by the authorities. The figure given for model year 2023 is also subject to recognition by the Environmental Protection Agency (EPA). For 2025, we anticipate a CO2 target in the USA of approximately 110 g CO2/km and expect to meet this target. For 2030, we aim to increase the share of electric vehicles in our new vehicle fleet to significantly more than 50%, which would put us within the target range of the current administration.


in grams per kilometer for the model year

CO<sub>2</sub> emission in Volkswagen Group passenger cars and light commercial vehicles under ghg standards in the USA (bar chart)
1 Subject to submission of the final MY report MY23 and subsequent recognition by EPA and CARB (internal data as of September 2023).
2 Subject to recognition by EPA and CARB (final MY report MY22 submitted but not yet confirmed).

Fuel and drivetrain strategy

With a view to the legal regulations on emissions, we are currently developing a forward-looking vehicle and drivetrain portfolio: we have set ourselves the objective of increasing drive system efficiency with each new model generation – irrespective of whether it is a combustion engine, a hybrid or a purely electric drive system. The Volkswagen Group closely coordinates technology and product planning with its brands so as to avoid breaches of fleet fuel consumption limits. As part of our electrification campaign, we aim to offer our customers worldwide around 50 completely battery-electric models by 2030. By then, more than half of our new vehicles worldwide are to be fully electric. By 2030, the Volkswagen Group aims to have electrified its entire model portfolio, from high-volume models to premium vehicles. To this end, in addition to the Modular Electric Drive Toolkit (MEB), we have also developed an all-electric platform for our premium and sports brands – the Premium Platform Electric (PPE). Furthermore, we are currently concentrating our energies on designing the Scalable Systems Platform (SSP), the successor platform for our future all-electric vehicles, in the Architecture technology initiative within the Group’s NEW AUTO strategy. The strategic goals of this SSP platform are to further reduce variance by consistently enhancing synergies and thus tapping into considerable savings potential.

To offer sustainable, affordable mobility in the future for as many people around the world as possible, we offer a range of drivetrains with a focus on electrification. From today’s perspective, conventional combustion engines will still continue to make up a large share of the drive portfolio in the coming years. In the interest of using resources responsibly, it is therefore essential to further enhance this engine segment and systematically consolidate it for specific markets. Powertrain measures such as significantly more sophisticated exhaust gas purification or mild hybridization of our vehicles, as well as vehicle measures such as optimized aerodynamics or reduced rolling resistance will be necessary to fulfill future emissions standards. We are preparing intensively for this as we develop our product portfolio.

It is more important to us than ever to rigorously pursue the modular approach. We are reducing the number of individual modules so that we can make a large product portfolio economically viable. For example, we are reducing the number of versions of conventional combustion engines in the Group in the long term as part of our transformation towards e-mobility. This will create capacity for the development and production of new electric drives.

Life cycle engineering and recycling

Technological innovation for reducing fuel consumption is not enough on its own to minimize the effect of vehicles on the environment. We consider the environmental impact caused by our products throughout the entire vehicle life cycle and at all stages of the value chain. This includes the manufacturing process with the associated extraction of raw materials, the production of materials, the processes at our suppliers and our own production operations at our sites, the use phase with the resulting vehicle emissions and the necessary supply of fuel and charging current, and ultimately the recycling of the vehicle at the end of its life cycle. Using life cycle engineering, we identify the stages of the life cycle at which improvements will have the greatest effect and develop appropriate solutions. Recycling, for example, is an important means of reducing environmental impact and conserving resources. When developing new vehicles, we therefore pay attention to the recyclability of the required materials and give recommendations that enable good separability of materials. We require the use of secondary materials, if these meet the same quality standards as primary materials. Under the European Directive on end-of-life vehicles, passenger cars and light commercial vehicles must be 85% recyclable and 95% recoverable. Our vehicles registered in Europe comply with these standards. We use the life cycle approach to monitor our climate protection targets as well. For this purpose, we have developed the decarbonization index (DKI) as a parameter, which also recognizes the emissions of an average Group passenger car throughout its life cycle.

Leveraging synergies increases efficiency

When developing vehicles, we cooperate closely with our brands to leverage synergies. The joint strategy of our development alliance involves, for example, making the Group more competitive and viable in the long term by deploying resources more effectively and efficiently in the research and development of new mobility-related technologies, products and services. In our Group-wide development alliance, the brands therefore not only work with each other, but also for each other on key technologies, forming cross-brand networks of expertise to address topics of importance for the future.

The Volkswagen Group further streamlined its innovation portfolio, gearing it towards multibrand technologies of the future in order to provide effective support for the brands’ capacity for innovation. In the reporting year, the new leading roles assigned to the brands in Technical Development in 2020 to increase efficiency and leverage synergies in module variance, components, parts and processes were applied to advance development to ensure the consistency of the innovation process.

We coordinate the use of modules centrally to reduce costs, capital expenditure and complexity. We are seeking to reduce expenditure in the modular toolkits, while at the same time facilitating widespread electrification and a focus on autonomous systems. We wish to achieve this through a considerable reduction in complexity using streamlined platforms that synergize but do not overlap. To this end, the individual Group brands draw on the modular toolkits, thus creating synergies between the various models of a product line, as well as across the product lines. By optimizing the toolkits, we are giving ourselves the financial leeway needed for developments in topics of importance for the future.

Connectivity and automated driving

The mobility of people and goods is a prerequisite for economic growth and social development. But natural resources are dwindling and climate change is advancing. Customers call for comprehensive mobility concepts to minimize the environmental impact. Such solutions need to be efficient, sustainable, crisis-proof, customer-oriented and accessible anytime and anywhere.

We are researching and developing such concepts in our Group-wide alliance: when shaping the future of mobility, we are looking not only at the automobile and related services, but at all modes of transport, transport infrastructures and people’s mobility habits. Digital connectivity and automated driving allow for completely new approaches to solving problems. They can help us play our part in a comprehensive mobility system for the future and drive forward our industry’s transformation.

New software solutions are the basis for this. This is why the Volkswagen Group has declared software development to be one of its target core competencies in its NEW AUTO strategy. Our software subsidiary CARIAD is responsible for this. It is to develop a sustainable, convenient, connected, safe automotive experience for the customers of our Group brands. CARIAD aims to provide answers to the strategic aspects of digitalization and pool the Group’s software expertise.

CARIAD’s developers work in innovation centers at sites in Germany, Europe, China and the USA. The German parent company CARIAD SE employs around 6,000 specialists who are developing the following solutions in the Group:

  • VW.OS, a uniform software platform for all Group vehicles
  • Uniform end-to-end electronics architectures
  • Connection to a uniform cloud platform
  • An infotainment platform with an application store for third-party providers
  • Driver assistance systems, automated parking functions and highly automated driving for private mobility
  • A data marketplace
  • New mobility services and digital business models

In 2023, the focus for CARIAD’s developer teams, together with the Audi and Porsche brands, was on delivering the software for the new E3 1.2 architecture, which optimizes the harmonization of hardware with the vehicle software from CARIAD. This is designed not only to improve the performance of vehicle computers but also to act as a key lever for the introduction of new services – even after vehicle production has begun.

CARIAD already supplies updatable software and updates for current vehicle generations, brands and markets, for example as part of its E3 1.1 architecture, with the goal of making the software secure and traceable.

In the long term, CARIAD is to pool all of its solutions in an enhanced, scalable software platform that will be made available to the Group brands, from the volume segment up to the premium platform. This is expected to generate economies of scale and to lower the cost of growing software requirements in the vehicle for all brands. In 2023, CARIAD started to realign itself with an extensive transformation program. A new Board of Management team began by implementing a five-point plan. The aim is to accelerate the development and delivery of software for the platforms. The reorganization will also lead to even closer collaboration between CARIAD and the Group brands. In 2023, for example, CARIAD, together with the Volkswagen Group, presented a new approach to the development of its E3 2.0 architecture. This is to form the basis for software-defined vehicles (SDV). In addition, the development of architecture for two Audi and Volkswagen vehicle projects will be bundled in future in a specially created SDV Hub. Further changes as part of the transformation program are set to materialize in 2024.

E3 2.0 is also set to pave the way for the autonomous driving functions of the future. The development of autonomous driving is a core element of the NEW AUTO strategy, with CARIAD responsible for developing partially and highly automated driving functions (up to Level 4) for the Volkswagen Group’s brands. These applications will be progressively introduced in the new vehicle models at different performance levels. Volkswagen Commercial Vehicles is responsible specifically for the areas of Mobility as a Service and Transportation as a Service (MaaS/TaaS). The strategic technology initiative Volkswagen Group Mobility is promoting autonomous driving in conjunction with new service models, i.e. shared mobility in these areas using robotic shuttles and vans.

CARIAD and Volkswagen Commercial Vehicles will continue to drive the future rollout of automated and autonomous drive technologies together with development partners.

Pooling strengths with strategic alliances

The aim of our NEW AUTO strategy is to transform our core business activities and to expand the mobility solutions business area at the same time. It is decisive to the success of this plan that we place our innovative strength on even broader foundations.

Within the Volkswagen Group, we combine our technological innovation activities in the Volkswagen Group Innovation unit. At seven locations worldwide in the USA, Europe and Asia, employees are working on sustainable solutions for urban and interurban mobility systems in line with our motto “Mobility for generations to come”. Technologies and activities that are ready for pre-development are regularly transferred from Volkswagen Group Innovation to our Group brands to ensure that the areas of digitalization, sustainability and e-mobility receive continuous support in innovative projects. In this way, we are creating an agile innovation structure that allows us to initiate new milestone projects with innovative international partners, even at short notice.

Growth in the mobility sector is strongly defined through regional innovation activities. Volkswagen therefore concentrates its strategic venture-capital activities and partnerships in the Group’s international innovation ecosystem. This helps us to identify the regional needs of customers more precisely, to adjust our product range accordingly and to establish competitive cost structures. In doing so, we rely to a greater extent than in the past on partnerships, acquisitions and venture-capital investments and manage investment selection centrally so as to generate maximum value for the Group and its brands. It is against this backdrop that we formed an alliance with Ford Motor Company. At the beginning of June 2020, Ford Motor Company and Volkswagen AG signed additional contracts within their existing global alliance for light commercial vehicles and electrification. Among other things, these contracts define the basis for a total of three vehicle projects: a city van (Ford Tourneo Connect based on the Volkswagen Caddy), a mid-size pickup (Volkswagen Amarok based on the Ford Ranger) and a one-tonne cargo van. The Ford Tourneo Connect and the Amarok have been on the market since 2022. The New Transporter will celebrate its world premiere in 2024. In addition, Ford will use the Modular Electric Drive Toolkit (MEB) developed by Volkswagen for two electric volume models. The aim of the cooperation is to place both Volkswagen and Ford in a position that enables them to improve their competitiveness, tailor their products to better meet the needs of customers worldwide and at the same time to leverage synergies related to cost and investment.

To design the framework conditions for the approval and introduction of our own self-driving system, we are actively involved in public projects. The experience we are gathering here benefits the Group brands and thus our customers.

The software subsidiary CARIAD is responsible throughout the Group for developing automated driving functions for our brands’ customers. In the Automated Driving Alliance, CARIAD and Bosch are striving to make partially and highly automated driving suitable for the volume segment. The aim is to provide functions for Group vehicles that allow drivers to take their hands off the steering wheel at times if regulations allow this. In the alliance, both companies are jointly developing Level 2 hands-free systems for driving in cities, the countryside and on the highway, and a Level 3 system which will enable drivers to look away from the task of driving on the highway at times and perform certain other tasks.

CARIAD is using a local partnership with Horizon Robotics to further consolidate development expertise in highly automated driving functions in the Chinese market. The companies also plan to develop specially modified high-tech semiconductor chips, so-called systems on a chip (SoCs), as part of a joint venture to implement key functions and features for highly automated driving on a single chip and to integrate these chips into the Group’s hardware and software architecture.

CARIAD entered into a new partnership in China with the software provider ThunderSoft in 2023. The focus of the joint venture is a new customer experience when it comes to infotainment and connectivity.

Over and above this, CARIAD is committed to open collaboration in the global developer community. For example, as a strategic member of the Software Defined Vehicle working group run by the Eclipse Foundation open-source community, CARIAD is involved in developing automotive software more efficiently and promoting innovation.

Key R&D figures

In fiscal year 2023, we filed 5,792 (5,305) patent applications worldwide for employee inventions, the majority of them in Germany. The fact that an ever-increasing share of these patents is for important cutting-edge fields underscores our Company’s innovative power. These fields include driver assistance systems and automation, digitalization, connectivity and alternative drive systems.

The Automotive Division’s total research and development costs in the reporting year amounted to €21.8 (18.9) billion and were 15.2% higher than in the previous year; their share of the Automotive Division’s sales revenue – the R&D ratio – was unchanged at 8.1 (8.1)%. In addition to new models, our activities focused above all on the electrification of our vehicle portfolio, digitalization, new technologies and enhancements of our modular and all-electric toolkits and platforms. The capitalization ratio was 51.2 (51.4)%. Research and development expenditure recognized in profit or loss in accordance with the IFRSs increased to €15.8 (14.3) billion.

As of December 31, 2023, our Research and Development departments – including the equity-accounted Chinese joint ventures – employed 59,626 people (+1.2%) Group-wide, corresponding to 8.7% of the total workforce.


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Prior-year figure adjusted (see disclosures on IFRS 17).

Capitalization ratio
The capitalization ratio is defined as the ratio of capitalized development costs to total research and development costs in the Automotive Division. It shows the proportion of primary research and development costs subject to capitalization.
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Modular Electric Drive Toolkit (MEB)
The modular system is for the manufacturing of electric vehicles. The MEB establishes parameters for axles, drive systems, high-voltage batteries, wheelbases and weight ratios to ensure a vehicle optimally fulfills the requirements of e-mobility. The production of the first vehicles based on the MEB started into series production in 2020.
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Premium Platform Electric (PPE)
A new vehicle platform for all-electric premium, sport and luxury class vehicles. The components and functions of this platform are especially tailored to meet the high demands of this segment. This platform enables high synergies to be achieved particularly between the Audi, Porsche and Bentley brands.
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Scalable Systems Platform (SSP)
The Scalable Systems Platform (SSP) is a future-oriented and industry-leading mechatronics platform for all-electric and fully digitalized vehicles based on a standardized software architecture. Innovative technologies and scalability enable high synergies from the smallest vehicles all the way up to the premium segment with the necessary differentiation between the brand groups Volume, Premium and Sport & Luxury, while at the same time enabling low investment requirements.
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Software Defined Vehicles (SDV)
Vehicles designed and developed with a focus on software. Highly digitalized with high-performance computers and modern, embedded computer systems. Their functions can be centrally controlled and updated and extended over the vehicle’s life. Their software docks flexibly with all kinds of hardware – from control units to sensors such as cameras and lidar. SDVs are considered the basis for safe, intelligently communicating vehicle fleets, a new customer experience in infotainment and highly automated driving functions.
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Test procedure
Levels of fuel consumption and exhaust gas emissions for vehicles registered in Europe were previously measured on a chassis dynamometer with the help of the ”New European Driving Cycle (NEDC)“. Since fall 2017, the existing test procedure for emissions and fuel consumption used in the EU is being gradually replaced by the Worldwide Harmonized Light-Duty Vehicles Test Procedure (WLTP). This has been in place for new vehicle types since fall 2017 and for all new vehicles since fall 2018. The aim of this new test cycle is to state CO2 emissions and fuel consumption in a more practice-oriented manner. A further important European regulation is the Real Driving Emissions (RDE) for passenger cars and light commercial vehicles, which also monitors emissions using portable emission measuring technology in real road traffic.
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