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The market for electric cars is booming in China.
However, German models are less in demand.
© N. Bruckmann/Midjourney*
From a purely economic perspective, Volkswagen is doing well in China.
But when it comes to electromobility, the gigantic company is losing out.
In order to be fit for the future, he has to adapt.
He's working on that right now.
Numbers don't lie and they look good for Volkswagen in China.
Last year the group sold 3.2 million cars in the People's Republic.
The majority of them – around three million – were cars with combustion engines and were in the black.
But when it comes to electromobility, the German company is increasingly losing touch.
An investment offensive should change that.
The necessary transformation is starting slowly, but at least it is happening.
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China's growth without Volkswagen
With its joint ventures, the German group sold 1.6 percent more vehicles last year than the year before.
In the non-electric car segment, Volkswagen even increased its market share from 19 to 20 percent.
Even electric car sales are not as slumped as the reporting would suggest.
200,000 cars means an increase of 23 percent.
But it just depends on the context.
Because Volkswagen is growing slower than the market.
The electric car market grew by 24 percent, the New Energy Vehicle (NEV) segment, which also includes hybrid drives, even by 38 percent.
Extrapolated to the overall market, there was growth of 5.6 percent.
The fact that VW is gaining market share is due to the shrinking market for combustion engines, which lost around 6 percent, according to the Chinese Passenger Car Association (CPCA).
Too busy with yourself
This was not surprising, as Stefan Bratzel explains.
He is the founder and director of the Center of Automotive Management (CAM).
“The situation in China is also related to the diesel scandal and the subsequent transformation.
After 2015, VW became very busy with itself and had to take care of its European and US business.
Then came Corona.
China has not been the focus of top management for years.
You simply didn’t see speed and innovation there.”
Volkswagen correctly draws the conclusion that it has to react now in order to be able to drive forward the transformation from a position of strength.
Investments despite austerity measures
At the end of last year, the top management decided on a ten billion savings package.
The aim is to sustainably reduce the number of employees in order to increase the margin for the core brand.
However, the enormous investment plan that Volkswagen approved in 2022 remains untouched.
180 billion euros are expected to improve the group in crucial areas by 2028.
Two thirds of the money is intended for electrification and digitalization.
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China has an important role to play here.
Volkswagen has massively expanded its production, development and innovation hub in Hefei.
“This allows us to tailor our products even more quickly to the needs of Chinese customers.
In a dynamic market environment, a high pace of development is crucial for competitiveness,” said Ralf Brandstätter, Member of the Board of Management of Volkswagen AG for China, commenting on the step.
Chinese customers are very price sensitive, Brandstätter stated when announcing the investments.
The result is an almost ruinous discount battle on the car market.
It is therefore crucial for Volkswagen to reduce costs and be able to offer affordable models.
Ready for production faster
Specifically, the Volkswagen China Technology Company (VCTC) is developing an electric platform for the entry-level segment.
The electric drive system should be based on the group’s modular system.
New electric cars could go from idea to production within 36 months.
That is why VCTC is not affected by the austerity program.
On the contrary.
When the platform begins operations in 2026, around 3,000 people will be employed there.
All developments and decisions that affect vehicles intended for the Chinese market come together at VCTC.
All of this is ambitious.
But the Chinese market is highly competitive.
“VW will never regain its previous position – i.e. being the big market leader – in China.
Chinese manufacturers are too strong in future technologies for that.
VW must be concerned with maintaining its current strong position,” says Bratzel.
In China, for China
Volkswagen's management is also continuing to expand in China.
Thomas Ulbrich will take over management of technical development in China on April 1, 2024 and will therefore also become CEO at VCTC.
He was most recently on the board of directors for “New Mobility” in the group.
Ulbrich is considered a proven development and software expert within the group and has already worked twice in a managerial position in China.
Its task is to promote localization (keyword: “in China, for China”) and networking.
“VW sent Ralf Brandstätter and now Thomas Ulbrich to China in order to have good people with a certain amount of power there.
The background is that VW also wants to use the experience, speed and processes that exist in China as a blueprint for Europe,” says Bratzel, commenting on the personnel.
Catching up through collaborations
Success will also be measured by whether and how well it is possible to bring the various projects and investments under one roof.
In addition to the well-known joint ventures SAIC Volkswagen, FAW-Volkswagen and Volkswagen Anhui, this also includes the companies Gotion (battery) and the software unit Cariad.
Equally crucial for the future is the integration of partners from Horizon Robotics (autonomous driving), ARK (user experience) and Thundersoft (infotainment).
Anhui Automotive started production of the Cupra Tavascan for export to Europe at the beginning of the year.
A model for the Chinese market is expected to follow this year.
Volkswagen's investment in the Chinese electric car pioneer Xpeng also caused a stir.
For $700 million, the German group received around five percent of the company, a seat on the supervisory board and a partner with whom two new electric cars are to be developed for the Chinese market.
“With Xpeng we now have another strong partner who is one of the leading manufacturers in China in important technology areas,” commented Brandstätter on the deal last year.
However, Bratzel also sees a bit of irony in this: “In this catch-up process, VW is suddenly cooperating with companies that had to cooperate with VW a few years ago.”
By Christian Domke Seidel