Bernstein: VW Won’t Realize Big Savings From MQB

Bernstein Research analyst Max Warburton thinks that the cost savings being anticipated by investors regarding VW's MQB modular architecture will not materialize as planned. MQB has been touted as a way to cut production costs by 20 percent via standardizing vehicle "hard points" like the pedal box and engine placement, while allowing for significant flexibility in other dimmensions. But Warburton remains a skeptic, telling the Detroit News "We have long argued that the savings from MQB have been over-hyped and were inevitably set to disappoint. There is absolutely no way a new platform can save 20 per cent of the cost of a vehicle at VW's level of scale," That assessment runs counter to estimates from banks like Morgan Stanley, which forecasts a savings of as much as $4,000 per car and as much as $10 billion in gross savings by 2016, once MQB has been implemented over 4 million cars. But the often touted benefits of scale don't hold up for Warburton, who believes that returns are less significant beyond 1 million units. From a product perspective, Warburton also believes that MQB's extreme flexibility – from A to D segment cars – could be more of a hinderance than a help "Either VW can engineer a Polo with Passat-level weight, rigidity and specifications, or a Passat with Polo-grade components. Most industry experts think VW will end up with a much too expensive small car platform…there are many reasons why VW may be able to resume profit growth in future years. It has great brands (Porsche now as well as others like Audi, Bentley and Lamborghini), products and technology, a unique position in China and one day the European car market will recover. But its margins are not going to expand magically just because it has a new platform," While TTAC has long been bullish on MQB and modular platforms in general, Warburton is a credible authority on the auto industry, and his concerns are not to be dismissed. Savings of 20 percent are indeed unprecedented for the auto industry, but with margins so thin and volume so critical, there is no doubt that MQB will be a significant technological advantage for VW. Nevertheless, TTAC has always been concerned about the possibility of cascading failures of standardized components that could lead to unprecedentedly large recalls. Only time will tell how these scenarios will play out.   from The Truth About Cars http://www.thetruthaboutcars.com

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