Berlin Despite the massive wave of corona infections in the country, Volkswagen is expecting growth in China again this year. The number of new infections will continue to decrease from the second half of the year, said VW China board member Ralf Brandstätter to journalists. “Especially with electric vehicles, a strong dynamic can be expected.”
VW’s deliveries in China fell by about 100,000 to 3.18 million vehicles in 2022 – a nine-year low. The strict zero-Covid policy and recurring lockdowns had thrown back the entire industry in the country. As a result, China’s auto market grew by just 1.4 percent to 21 million vehicles last year. Volkswagen also crossed out its goals.
China boss Brandstätter is firmly convinced that the most populous country on earth will return to normal after the recent relaxation of the corona virus. After the Chinese New Year at the end of January, another wave of infections is to be expected. But even this will not change anything about the fundamental opening policy of the Chinese government.
Brandstätter did not say exactly how much VW would grow in China. However, he estimates that the entire Chinese car market will grow by four to five percent in 2023 – from which VW will also benefit. For hybrids and all-electric models, the share in China-wide total sales was around 25 percent in 2022. In 2023 it should be a good 30 percent, according to Brandstätter. VW was recently able to sell a good 155,000 all-electric vehicles in the People’s Republic, a growth of 68 percent.
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Volkswagen’s China business: thanks to combustion engines
“The electronics market in China is growing faster than expected. Also faster than the Chinese government had expected,” said VW board member Brandstätter. The public is very interested in electric vehicles. The main reason for this is the cheap electricity price in China; refueling a combustion car is significantly more expensive in the People’s Republic. In addition, there are entry restrictions for combustion engines in the larger cities due to the high emissions. E-cars, on the other hand, have free rein.
In its most important sales market, China, Volkswagen still makes most of its money from the sale of petrol and diesel vehicles. Here, VW was able to increase its market share by 1.4 points to 19.4 percent in 2022. In electromobility, however, competitors such as Tesla or BYD are ahead in the People’s Republic, who have more to offer than Volkswagen in terms of charging times and digital equipment.
“We are still concerned about Volkswagen’s business in China,” says Daniel Röska, an analyst at service provider Bernstein. He calculates with a bad year for the German car company, with a recovery is not expected until 2024. Volkswagen must prepare for a growing threat from local Chinese manufacturers. In addition, the platform development at VW is delayed, which leads to further problems.
Unlike Brandstätter, Röska is critical of the recent relaxation of the corona virus. New car production is likely to grow faster than actual demand. In addition, other Chinese electrical manufacturers are still being added as new suppliers. The entire auto industry in China could thus be forced to give extensive rebates and other sales discounts again, which would also weigh on earnings.
Most recently, Tesla had caused displeasure among its customers with large price reductions in China. According to Röska, if VW had to give discounts, the carmaker would be under particular pressure because of its high dependence on the Chinese car market.
Tesla, BYD: Volkswagen’s tough competition in China
“Competition in China is tough,” emphasized Brandstätter. However, VW will assert itself against the growing competition. “We will accept this challenge,” he said, “we will keep up with the speed of the market”. The cars from Germany would be much more adapted to the wishes of Chinese customers.
In addition, VW will develop “more in China for China”. This includes, for example, that Volkswagen is building its own development center with 2,500 engineers in Anhui, southern China. In addition to Wolfsburg, this could result in a “second headquarters” for technical development. In addition, the group’s own software unit Cariad is increasing its workforce in China. The current number of around 600 developers is set to grow to around 1,200 this year.
For the first time in several years, Brandstätter has been in charge of Volkswagen’s China business since August, and he is also a member of the Group’s board of directors. The 54-year-old was previously the head of the VW brand.
(Photo: Volkswagen AG)
New joint ventures with local Chinese suppliers are playing an increasingly important role. In the old year, the VW Group had announced a cooperation with Horizon Robotics. Volkswagen wants to invest a good two billion euros in a new joint venture that will develop solutions for autonomous driving. These new software developments for autonomous cars are only used in China. “This will allow us to get even more involved with the Chinese ecosystem,” emphasized Brandstätter.
As in Europe, Volkswagen also wants to transfer local model icons from the world of combustion engines to the new electric age in China. Lavida or Bora are just as well known in the People’s Republic as Golf and Tiguan in Germany. Brandstätter indicated that there could be a future for the Chinese model icons even after electrification.
>> Read about this: What VW brand boss Thomas Schäfer is planning for Germany and Europe
Industry experts are skeptical as to whether that will be enough in the end. “In the largest and most important car market in the world, German car manufacturers have so far been at a disadvantage compared to domestic brands when it comes to electromobility,” warns Stefan Bratzel from the Center of Automotive Management (CAM) in Bergisch Gladbach.
VW China boss Brandstätter: Visit to Uyghur province planned
The VW board also warned against withdrawing from the People’s Republic. “We must not intentionally weaken our position in China for political reasons,” said Brandstätter. Decoupling from the Chinese market cannot be the answer to the problems of the 21st century. Volkswagen also wants to play a leading role in China in the future, but at the same time is expanding its position in other parts of the world, such as North America. This ensures a new balance in the entire Volkswagen business.
Brandstätter announced that he would like to travel to the Chinese province of Xinjiang in February. Human rights organizations have repeatedly criticized Volkswagen for running its own plant in the Uyghur region. The government in Beijing is suspected of serious human rights violations there. After the corona openings, Brandstätter can now travel to Xinjiang for the first time.
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