Volkswagen AG says it would cut investment by €1 billion ($1.5 billion Cdn) within the year and step up development of hybrid and electric vehicles.

Faced with fines that could amount to billion of dollars in the scandal over rigging of emissions tests, the German company sped up cost cutting in its largest division, the VW unit.

It also announced a revamp of its diesel program, saying it would switch to a new technology that uses a urea solution called AdBlue to reduce diesel emissions. This technology is more expensive than the lean NOx traps currently used in its diesel models. 

New diesel technology

Volkswagen is facing a crisis after it was revealed that its diesel engines in North America and Europe are installed with software that turns on emissions control during testing conditions, but turns it off during real-world driving. For the past seven years, these vehicles have been emitting more than the legal limit of nitrogen oxide.

Herbert Diess, head of the VW unit, said changes to the diesel engine technology would be made "as soon as possible."

"We are becoming more efficient, we are giving our product range and our core technologies a new focus, and we are creating room for forward-looking technologies by speeding up the efficiency program," Diess said.

The focus on electric and hybrid vehicles may be smart, given the loss of confidence in diesel likely to arise from the scandal.

"There is a real chance for VW to even extract something positive from the diesel fiasco," said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne.

"Funnelling more resources into electric mobility gives them a credible future perspective to try to overcome this crisis."

Facing huge losses

VW's flagship Phaeton model will in the future be purely electric, with the automaker promising long distances on a single charge.

The cost cutting comes as Volkswagen, the world's biggest automaker, faces losses because of the price of handling the emissions scandal.

It will have to have to refit up to 11 million diesel vehicles that could contain cheat software, about five million of those from the VW brand.

It has set aside €6.5 billion ($9.75 billion Cdn), but faces costs of up to €35 billion ($51.5 billion Cdn), analysts say. And that's before the lawsuits, the fines for breaking emissions laws and the potential criminal prosecution around the world.

With files from Reuters