Volkswagen fails to win ground in China

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Volkswagen has failed to win ground from key rivals such as Tesla and BYD in China, despite spending €5bn last year to defend its position in the world’s biggest car market.

The company, which also owns brands including Audi and Porsche, said on Tuesday that its sales in China rose 1.6 per cent last year. That compared to 5.6 per cent overall growth in the market reported by the China Passenger Car Association.

In the critical electric vehicle segment, VW recorded 23 per cent growth, compared with 36 per cent across China’s EV market.

Ralf Brandstätter, VW’s board member for China, said the company had maintained a “robust position despite a challenging market” adding that he expected the “situation [to] remain demanding over the next two years”.

VW and many of its established peers in Europe, Japan and the US are struggling to maintain their position in the Chinese car market.

The market share of foreign brands in China had fallen to about 44 per cent by December, from 64 per cent in 2020 when Chinese consumers started to buy more locally made EVs, according to Shanghai consultancy Automobility.

“With the exception of Tesla, foreign brands were caught flat-footed as they did not anticipate the market shift [to EVs] and are rapidly losing relevance,” said Bill Russo, the former head of Chrysler in China and founder of Automobility, in a research note.

Beyond Tesla, which has tripled its sales in China since 2020, Shenzhen-based BYD has been the biggest winner from China’s rapid uptake of EVs. The company, which counts Warren Buffett’s Berkshire Hathaway among its shareholders, sold a record 526,000 battery only EVs in the fourth quarter, compared to Tesla’s 484,000, becoming the world’s biggest producer of battery powered cars.

VW, one of Germany’s largest companies and employers, was one of the first western companies to start doing business in China in the 1970s and today depends on the country for at least half of its annual profits. Last year, the VW brand was dethroned as China’s best-selling car by BYD.

In an effort to defend its position in China, VW last year announced €5bn of investment in the country and rolled out an “In China, for China” strategy to develop cars specifically to appeal to domestic consumers. Analysts have credited the company for its efforts while other automakers, such as US group Ford and South Korea’s Hyundai, have fallen further behind Chinese rivals.

VW’s investments last year included a plan to spend $700mn on a 5 per cent stake in Guangzhou-based EV start-up Xpeng.

The Chinese market for internal combustion engine cars, the segment where VW sells most of its vehicles, shrank 6 per cent in 2023 compared to a year earlier.

VW said on Tuesday that its global deliveries of cars reached 9.24mn in 2023, a 12 per cent rise from the year before, when the industry was still badly affected by supply chain bottlenecks for key parts such as semiconductors.

“That is a solid performance given the geopolitical and economic framework,” said Hildegard Wortmann, a member of VW’s extended executive committee, adding that the group’s global sales of electric cars grew more than a third to 770,000.

The company’s position in China is further complicated by its factory in Xinjiang. China has been accused of widespread human rights abuses against Uyghur and other Muslim groups in the region.

In December, VW said that an audit of its plant in Xinjiang carried out by German human rights consultancy Löning and a Chinese law firm had found no indications of the use of forced labour.

Subsequently, all of Löning’s 20 employees apart from founder Markus Löning and another executive, made a statement on LinkedIn distancing themselves from the firm’s findings.

Additional reporting by Gloria Li in Hong Kong