Dusseldorf, Vienna China is the favorite country of German car manufacturers. Here they sell more than a third of their vehicles and generate more than half of their profits. The analysts at asset manager Bernstein estimate that Volkswagen alone will owe a good 68 percent of its net income to customers from the People’s Republic in 2021. At BMW and Mercedes-Benz it was between 53 and 51 percent.
This heavy addiction was more of a blessing than a curse until recently. But now the business with combustion engines in China is eroding and local manufacturers such as BYD, Nio or Xpeng in particular are benefiting from the electric car boom. Most recently, Volkswagen even had to give up its top position as the largest car manufacturer in the Chinese market to BYD.
Difficult times may also lie ahead for BMW and Mercedes: The proportion of premium vehicles in new registrations could fall from 15 percent today to 1.5 percent in the long term due to the country’s high level of debt, warns Jochen Siebert, director of JSC-Automotive. This is a “massive problem”, especially since the geopolitical risks are increasing. The China expert advises the corporations to “now look around for alternative growth markets”.
Untapped potential in Southeast Asia
Alone, such advice has so far faded away. Volkswagen, in particular, is systematically neglecting business in promising countries in Asia and North America, according to a Handelsblatt analysis. This is partly the case with Mercedes and BMW. All in all, the German car manufacturers are currently only strongly positioned in Europe and China with market shares of 38 and 22 percent respectively.
In the USA and Canada, on the other hand, not even every tenth new car comes from a German brand. And in Southeast Asia, the VW Group, BMW and Mercedes can only combine two percent of the car business.
Exclusive figures from the data service provider Marklines show that the Asean region in particular offers a lot of potential. A total of around 600 million people live in the five most important countries Thailand, Indonesia, Malaysia, Vietnam and the Philippines. With 2.9 million new cars, the car market is still comparatively small, but mobility is often a matter of two-wheelers. But the market is growing rapidly.
On average, vehicle registrations in ASEAN countries increased by a quarter last year, while those in China shrank by three percent. Together with Japan, India, Australia and South Korea, the Asean region offers German car manufacturers an annual sales volume of almost 14 million cars.
Although these countries cannot replace China with a volume of 21 million new cars, they can certainly help to compensate for the existing imbalance of many corporations. “We assume that the Asean region will develop well in the next few years,” said JSC expert Siebert. Western automakers could use their existing factories in China to export to surrounding markets.
While Chinese manufacturers such as Great Wall and BYD are already expanding and building new plants in Thailand, for example, VW, BMW and Mercedes have so far hardly exhausted their opportunities in Asia outside of China.
Toyota alone sells 300,000 vehicles in Indonesia
Example Indonesia. The country has almost 280 million inhabitants. Gross domestic product rose by more than five percent last year, and car sales by a good fifth. Almost 800,000 vehicles were sold last year. However, Volkswagen’s market share in Indonesia is a meager 0.06 percent.
The Wolfsburg-based company, including its premium subsidiaries Audi and Porsche, was only able to sell 456 cars recently. BMW and Mercedes are slightly better at half a percentage point, but by no means good. For comparison: Toyota dominates the Indonesian market, claiming almost 41 percent with more than 310,000 vehicles sold in the core brand alone.
German car manufacturers are leaving great sales potential untapped in the Southeast Asian market.
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The German car manufacturers are even worse off in the Philippines. VW, BMW and Mercedes, including all sub-brands, sold just 2,583 cars in the country last year. The added market share of the Germans is 0.7 percent. Others benefit from the recent growth of 26 percent in the Philippines.
In emerging markets such as Thailand and Malaysia, BMW and Mercedes sell up to 15,000 new cars a year, which corresponds to market shares of between one and two percent. Not much, but a start. The Volkswagen Group, on the other hand, does not even manage a third of that.
The boom in electric cars offers German manufacturers a great opportunity, especially in Southeast Asia. Toyota, Honda, Mitsubishi and Suzuki have dominated the region’s auto sector for years. But the four Japanese are considered late starters in electromobility. Others can now jump into this gap, especially since Thailand and Indonesia are increasingly subsidizing battery cars.
However, Volkswagen in particular seems to be misjudging the possibilities of the Asian markets, as a look at South Korea shows. While a market for premium vehicles is only slowly emerging in the Asean region, South Korea is considered a mature market with many wealthy customers.
BMW and Mercedes have recognized this and are consistently taking advantage of their opportunities in the country. Both manufacturers have successively increased their sales within a decade and are now selling more than 80,000 sedans and SUVs a year in South Korea – despite strong domestic competition such as Hyundai and Kia.
Volkswagen relies on India with Skoda
Audi, on the other hand, exports just over 20,000 vehicles to South Korea – just as many as ten years ago. Deliveries by the VW brand even dropped by 38 percent to 16,000 cars between 2013 and 2022. After all: Porsche was able to quadruple its sales there to 9000 new cars.
Meanwhile, Volkswagen has chosen India as a major promising market for its mass models. In the fourth largest car market in the world, the Wolfsburg-based company wants to get off to a flying start with the cheaper Skoda sub-brand. With over 1.4 billion people, India is now the most populous country in the world.
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Indian women and men are still mainly on the move with two wheels – mopeds and motorbikes dominate the streets. At the same time, the market for passenger cars is also growing steadily. The experts at LMC-Automotive forecast solid growth. Overall, the Indian car market could grow from the current 4.3 to 4.8 million vehicles by 2025.
However, Skoda recently only sold around 54,000 cars in India. The market share of the VW subsidiary was little more than one percent. One obstacle for the German car manufacturers in India are the high import duties. Even today, no Western manufacturer in India can do without on-site assembly plants, in which delivered individual components are screwed together to form complete vehicles. If you want to grow, you will have to invest even more in the future.
The same applies to business in North America. US President Joe Biden only wants to grant tax credits to foreign brands of electric cars if important components such as batteries are increasingly manufactured in the United States.
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The increase in local added value in the USA could pay off for German car manufacturers in the long term. Because here there is de facto no competition from China, US consumers despise vehicles from the Far East. Instead of facing well over a hundred competitors, the Germans in the USA only have to hold their own against about a dozen competitors when it comes to electric cars.
VW has to produce pick-ups
In addition, in the United States, as in Canada, there is a broad, growing upper class that can afford luxury German cars. As part of its luxury strategy, Mercedes is already increasingly focusing on North America. Here, for example, the business of the posh Maybach sub-brand is to be significantly expanded. BMW also wants to grow overseas with its high-priced luxury SUVs. Both groups are already selling a good 400,000 vehicles in the USA and Canada.
With a deal in China, BMW is driving sales and profits to new heights. The carmaker now has to use this financial strength to reduce its dependency on combustion engines.
Audi is also clearly lagging behind here with 216,000 new cars last year. Even the volume brand VW, with 348,000 units in the USA and Canada, is well behind the figures for the premium manufacturers BMW and Mercedes. Over a ten-year period, VW sales in the USA have shrunk by a good quarter, not least as a result of the diesel scandal.
If the Wolfsburg-based company wants to reduce its dependency on China, a trend reversal in North America with its more than 16 million new cars per year is essential, says Stefan Bratzel. “Volkswagen needs to get stronger in the US,” explains the director of the Center of Automotive Management (CAM).
For this, the Wolfsburg-based company would have to create an entry into the important pick-up segment, at least in the medium term. “Toyota did it too, it can’t be that difficult,” comments Bratzel. In South America, on the other hand, the industry expert sees hardly any growth opportunities in the short term.
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