The VW scandal points not only to issues at the company, but a deeper problem with all combustion cars.
The real fix is not to monkey around with software, but to take a bold new path for the company.
The VW scandal has already resulted in the firing of its CEO and is growing by the day. This week, the government found that more brands and models have cheat tests installed than previously thought. It looks like the cheating extended into the Porsche brand of cars and others as well -- all owned by VW.
When facing a corporate crisis such as this, half-measures are not sufficient. The company, unfortunately, is trying to recover using a finger in the dam method that will surely fail. Fixing the test software does not solve the bigger problems:
1. The VW brand is now even more closely associated with diesel -- a technology which is shunned in the U.S. and is falling out of favor in much of the world as the diesel discount to regular gas has all but evaporated and in some cases inverted.
2. VW has such a disparate collection of brands and it now appears all have a scandal issue. It is hard enough to revive one brand. It is nearly impossible to restore the faith in many brands at the same time without a bigger, bolder solution.
VW has announced that beyond fixing its testing software to hopes to come out with more plug-in hybrid models of cars. This is too little, too late. VW, Audi and Porsche already have some plug-in models but have not marketed them well.
Instead, it is time for a bold move.
VW should announce that it will take all of its models all-electric. This initially sounds like a crazy idea.
Let's analyze its potential:
1. Tesla today has a market cap of $26 billion. It only sells 35,000 cars a year, but the boldness of its vision and prospects for growth attract human and financial capital. VW today has a market cap of $64 billion -- VW could easily sell many times the number of EVs as Tesla. It has the manufacturing, distribution, and marketing power to make EV mainstream. It will be rewarded with an even bigger market cap.
Analysts will have to throw out their old financial models for the company and focus on a leaner, more resilient company.
2. Plug-in hybrid increases complexity - ALL EV decreases complexity and cost. VW's current strategy of moving into plug-in hybrids in a bigger way is not advisable. Look at Tesla vs. Fisker. Why is Fisker -- a plug-in hybrid -- gone and Tesla zooming along? Half-baked tech is harder to do. You have to put in two drivetrains and account for a lot more engineering. ALL EV is simpler.
3. If VW announced it is going ALL-EV it will rock the industry and attract the best and brightest engineers. If VW goes along with same old same old, it will lose all its top engineers who are now completely demoralized. Instead, wit this strategy, it will rocket to the top of most sought-after places to work.
4. VW and Audi already have self-driving technology. An Audi recently made it across the whole U.S. mainly in self-driving mode. This can be an additional goal -- to equip all of its cars with self-drive tech.
In summary, VW can use this as a big opportunity to break with the combustion past and lock into the future. It will be rewarded with the top engineers, a bigger market cap, and a happy customer base.