“We cannot only work with democracies”

So don’t you share the concern of many economists who see the world heading towards stagflation, a period of low growth rates and high inflation?
I hope it doesn’t come to that. But it is in Europe in particular that we will feel the effects of the war. For Germany it is about the question of energy supply. The other dimension is geopolitical, and that’s more long-term.

This means?
The question is whether we will experience bloc formation again, whether we will go back to a time of isolation, closed borders and limited travel options. There are also signs that the conflict over technology dominance between the USA and China is becoming even more acute.

Then what kind of world is this?
When we were young we couldn’t even go to Saint Petersburg. We hardly had any contacts and couldn’t go to China. The world was closed, smaller, and it developed more slowly. I am afraid that we will now have to deal with such scenarios again.

This is bad news for Germany in particular, an economy that depends on foreign trade like no other.
This is an extremely negative scenario for Germany, which would also pose a threat to the German business model. Because Germany lives from an open world, from exports, from trade, from access to raw materials. In an isolated world, we would develop more slowly than other regions and would no longer play the role that we have today due to our economic strength.

What do you mean by that?
We have a say because we are a major respected nation invested in China and the US. As that importance diminishes, so does our influence.

Does business have to make moral compromises?
We have to make moral compromises. We can’t, we shouldn’t make them on our claim. We rightly defend our ideals. Europe has the best social system: human rights, democracy, peace, freedom of speech. If the world were like Europe everywhere, it would be better. We should vigorously defend these values, but of course that is easier to do from a position of economic strength.

>>> Listen to the full podcast episode here: VW-Boss Herbert Diess: “We cannot limit ourselves to working only with democracies”

At the World Economic Forum in Davos, it was repeatedly discussed that the global elites had to decide on a “moral change”.
We have to be role models. But you can’t be a role model based on moral standards alone, you can only do that through economic success. Therefore, we cannot confine ourselves to working or being economically active only with democracies that fully meet our values. That’s a maximum of ten percent of the world’s population.

“Economically, the Xinjiang location is rather insignificant”

In this context, what do reports from China trigger in your mind, which have again shown a dramatic picture of the oppression of Uyghurs in the Xinjiang region, where VW also operates a plant? Do you compromise?
We have been dealing with Xinjiang for many years. Our joint venture partner, SAIC Volkswagen, has a small factory there. Economically, the location is rather insignificant.

Then you can simply shut down the plant in protest against the Chinese actions.
We could. But we don’t do it because we believe that our presence makes a positive difference.

I beg your pardon?
We travel there, making sure, like everywhere else in the world, that our working standards are enforced, cultural and religious differences are respected. I believe that the presence of SAIC Volkswagen will improve people’s situation.

So far, your presence seems to have had little effect. Does the new research mean nothing to you?
Yes of course. Because of our history, we are particularly sensitive to the issues of human rights, civil liberties and freedom of expression. That is why we are very active in enforcing our high standards at our locations. And of course we disapprove of what is happening there. If we had evidence of wrongdoing at our local facility, we would take massive action.

How do you generally assess the situation in China? Some economists fear a recession scenario.
I don’t see that. But we are also going through difficult times in China. Over a thousand expats had to endure there. But there are also bright spots.

With the assessment you should be pretty much alone in view of the ever new lockdowns.
Our factories are running again, I expect that the exit restrictions will also be reduced. And I am confident that in a few weeks we will see China ramping up again. The Chinese economy is able to regain its footing relatively quickly.

But car sales have recently fallen in China.
The first two months before the Covid restrictions were very good for Volkswagen. We sold four times as many electric cars as in the previous year. There is no reason for pessimism. Growth will slow down somewhat, but there is still a lot of catching up to do. China is still not a rich country in terms of per capita income.

“China will remain the engine of growth”

That sounds like a good portion of purposeful optimism.
China will remain the engine of growth. The country has a fantastic education, and there is also relatively good equality of opportunity. And you can see that the Chinese simply want innovation, progress and more prosperity.

What does this mean for your car business?
Although China is already the largest car market in the world, relatively few vehicles are sold in relation to the population. In terms of stock, China has 250 to 300 cars per 1000 inhabitants. In Germany we are around 600, in the USA there are even around 800. These figures alone make it clear that China will remain by far the largest growth market.

How does that fit in with the fact that you earn less and less in China every year?
We continue to have the highest revenues, sales and returns in China. We earned well in the first three months of this year. Electrification is also making good progress there. China shouldn’t just be understood as a simple sales market.

Rather?
You also have to see the country as a market for the future that will advance the whole world technologically. If you decoupled from China, you decoupled from growth and technological advances.

The debate is actually going in a different direction: has the German economy become too dependent on China?
As the market leader in China, we are asked this again and again. I say: No, we are the market leader in the market that is growing the fastest and is the technological leader. And we want to stay that way for as long as possible. In addition, we also want to grow in other regions of the world. For example in the USA, where we currently only have a market share of around four percent.

Will the US business push back the importance of China at Volkswagen?
Not necessarily. Because we expect China to grow faster than the US.

And how do you see Europe? One of the world’s most important private equity investors recently said: “Europe is too fragmented and too weak.” Do you share this impression?
There’s definitely something to it. We are dependent on energy. Militarily, in terms of NATO spending, we are dependent on US protection. And we are also technologically dependent in many areas: we have no tech companies, no big social media. Of the three blocs of Europe, China and the US, Europe is the weakest when it comes to political influence and economic resilience. But we have the best political system, with a diversity that is unique. That’s why we have to think about our own interests. I have to say that I lack European leadership in this endlessly painful war in Ukraine, which is taking place on our doorstep. Economically, too, Europe must become more independent, assert its trading interests and promote innovation and investment in new technologies.

What does this diagnosis mean for VW?
The disintegration of the world into power blocs is likely to make business more difficult for international companies. We are a global automotive company, the industry is highly consolidated. If companies in one region are no longer successful, things will also become difficult in other regions. This applies to all of our competitors, including us. A fragmented world would lead to less growth and less innovation. Combating climate change would also be much more difficult. That is why we must defend our European business model and ensure that our companies, which are successful worldwide, remain successful. What I took away from Davos from the statements made by European politicians was that Europe will continue to adhere to an open world order, to a multipolar world with free trade. That makes me positive.

Thank you for the interview.

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