Don’t forget that the VW group and Toyota very much compete in the luxury market.
Porsche, Audi, Bugatti, and Lamborghini are all part of the VW group. VW is majority owned by the Porsche-Piëch family.
Toyota has Lexus.
Selling only luxury cars sounds appealing in terms of profit margin, but the automotive industry has a lot of complex systems with high development costs where economies of scale come into play.
Sure, but the big difference in my mind is that they both started in mass market segment and then eventually added separate luxury brands to their portfolio.
Tesla started pretty high end and are trying to move down into the mass market.
Maybe. Scale become more and more important in the long run for sustaining market-leading, cost-efficient innovation. Whoever has the greatest scale in EVs will likely have the best and cheapest (per-unit) batteries, cameras, sensors, software, etc.
It's not certain they'll want to. Much better to stay a higher end brand and focus on "fun" and exciting high end cars people (and other car makers) aspire to, rather than trying to out compete Toyota and VW in making Corolas and Polos.