VW looks to Amazon to boost productivity
March 27, 2019
When Volkswagen (VW) chief executive Herbert Diess posted a selfie with Amazon CEO Jeff Bezos from the MARS Conference in Palm Springs last week, it was speculated that the two industry leaders are eyeing some kind of new partnership, even more so as Diess wrote that the pair was "looking forward to shaping the future together."
But, contrary to expectations, and what the MARS Conference's name might suggest — namely new developments in machine learning, automation, robotics and space — the collaboration is not about self-driving cars.
The German carmaker needs Amazon Web Services (AWS) to power its Volkswagen Industrial Cloud, which is intended to become a platform linking VW's 122 production facilities around the world.
Last year, Diess announced a new strategy aimed at improving production efficiency at the carmaker by 30 percent by 2025. The new plan is expected to result in a loss of 7,000 jobs by 2023 and savings to the tune of €8 billion ($9 billion) in cash to be spent on research and development.
What's the Volkswagen Industrial Cloud all about?
VW's head of production Oliver Blume said in a statement that strengthening production was a "key competitive factor" for the company. "We want to create a growing industrial ecosystem with transparency and efficiency bringing benefits to all concerned," Blume, who is also head of VW's Porsche brand, added.
The automaker's goal is to standardize and network all production-level machinery, equipment and systems, which currently use different software programs. Thereby, the Volkswagen Industrial Cloud could simplify data exchange between systems and plants, helping VW to optimize operations by anticipating and avoiding bottlenecks.
During the first phase, the platform will connect all machines, plants and systems in the group's global facilities, including those of subsidiary brands such as Audi and Porsche. Over the longer term, VW also wants to integrate its global supply chain of more than 1,500 suppliers and partner companies, which have 30,000 different locations.
Moreover, VW said it was negotiating with major industrial companies interested in migrating to the Volkswagen Industrial Cloud because its services would be offered on an "open platform."
Amazon's cloud-computing power
Although Amazon is best known for its e-commerce, the US tech giant's web services division (AWS) has become the world's dominant cloud provider. Industry analysts have estimated that revenue generated by AWS will reach $71 billion in 2022, which would give the division a valuation of about $350 billion.
AWS's role in the collaboration will be to collect real-time data from Volkswagen's manufacturing plants. AWS's Internet of Things (IoT) services are planned to organize and analyze the data from the plant floor.
AWS Chief Executive Andy Jassy said in the VW statement that the planned industrial cloud "will reinvent its manufacturing and logistics processes."
Cloud computing means using a network of remote servers connected over the internet instead of installing a local server, enabling flexible access to large amounts of computing power.
In order to achieve their goals, VW and AWS will have about 220 specialists working on the project in several German cities as well as in a future joint Industrial Cloud Innovation Center in Berlin. They aim to put the Industrial Cloud and its first functions into operation by the end of 2019.
Preparing for a new era of mobility
The collaboration comes at a critical moment for Volkswagen, which has just grown out of its Dieselgate emissions scandal and seeks to prepare for the future of mobility.
CEO Herbert Diess has been pushing for more efficiency in production and a higher pace of innovation. Although the 12-brand group delivered 10.8 million cars last year, a rise of 0.9 percent, operating margins fell slightly to 7.3 percent from 7.4 percent in 2017. By streamlining production, VW hopes to push margins back to 7.5 percent this year.
Moreover, tougher new CO2 emission laws being introduced by the EU are increasingly calling on global carmakers to substantially reduce their fleet emissions.
Therefore, VW has announced a new electromobility strategy with an aim of bringing 22 million electric cars to the roads over the next decade. Under the plan, VW also works together with another US tech giant, Microsoft, to develop what it touted as "the largest digital ecosystem in the automotive industry."
In September 2018, the groups said they would jointly develop the "Volkswagen Automotive Cloud" on Microsoft Azure, a cloud platform for the Internet of Things. The partnership is part of a €3.5-billion bet Volkswagen is making on connecting its fleet of cars to the web.
Partnerships between carmakers and software groups are increasingly becoming a norm with drivers caring more about dashboard apps and services rather than what's under the hood.
VW said the new services would include charging and billing for electric vehicles, car sharing, ecommerce applications and telematics, which combines GPS mapping with on-board diagnostics to enable in-car assistance and fleet management.