A big problem for VW, it’s facing a decline in Chinese market share

German automaker Volkswagen is losing market share in China to local automakers. China is the group’s largest market and falling share presents one of the toughest challenges for new group boss Oliver Bloome. He writes the Wall Street Journal (WSJ) about it on his website.

Despite some sales growth in recent months, Volkswagen estimates its Chinese market share at around 16% this year. According to data from research group Jato Dynamics, this represents a drop of almost a fifth from 2019, when the share was around 20%. Volkswagen holds the largest share of the Chinese car market among foreign manufacturers. It owns popular brands in China, such as VW, Skoda, Porsche, Audi and Bentley, the WSJ points out.

Blume became the concern’s chief this September. In addition to a decline in market share in China, it also faces rising energy costs, persistent supply chain problems and delays in the development of its software, which have disrupted the launch schedule of new models. However, China has long been a major source of revenue for the company, which is why China’s declining market share is particularly worrying, writes the WSJ.

Last year, China accounted for 37% of the group’s new-car sales and 15% of its gross profit from its passenger-car-focused business. Volkswagen operates 40 manufacturing plants in China, either alone or through joint ventures. The former head of the group, Herbert Diess, even called Volkswagen a Chinese company in the past.

According to research institute Rhodium Group, Volkswagen was the largest foreign investor in China last year. “China is of paramount importance to Volkswagen and at the same time represents the greatest risk for this company,” said Noah Barkin, an expert on Europe-China relations at the Rhodium Institute.

In addition to Chinese competitors, Volkswagen’s position in China is also being undermined by the American electric car manufacturer Tesla. According to Jato Dynamics Group, Tesla’s share of the entire Chinese car market is only 2.2%. However, according to the research group ev-volumes.com, in the Chinese electric car market alone, it reached 11.6% last year, while Volkswagen’s share was only 3.5%. According to a survey by Bernstein Research, many electric car buyers in China consider Tesla cars more sophisticated and attractive than Volkswagen cars. Volkswagen is now lagging behind Chinese brands such as BYD, Geely and Dongfeng Motor in electric car sales in China.

The weakening position of the Volkswagen Group in China first manifested itself a few years ago, when its Audi brand lost its leading position in the Chinese luxury car market. Last year’s launch of the ID.4 electric sport-utility vehicle on the Chinese market also brought disappointment. According to some analysts, this machine is too big by Chinese standards, writes WSJ.

In response to weak sales of ID.4 cars, the former head of the Diess Group has made changes in the management of the Chinese business. In August, Ralf Brandstätter, who previously headed the VW flagship brand, was tasked with ensuring the revival of these businesses. After a weak start to the year, the group’s sales in China increased by 26% in the third quarter. Sales of ID.4 cars and other electric cars from the Volkswagen Group have also seen an increase, but are still lagging behind the competition, writes the WSJ.

In China, Volkswagen is having problems, among other things, attracting younger customers interested in purely electric cars equipped with modern technologies, such as advanced voice control systems. According to surveys, many Chinese consumers believe that Volkswagen’s mass-produced electric car technology is not as good as that of domestic brands.

In a bid to narrow its competitive edge, Volkswagen’s software division has invested one billion dollars (more than CZK 23 billion) in Chinese technology company Horizon Robotics. It also spent 1.3 billion euros (about CZK 32 billion) on a 60% stake in their joint venture.

“We need different ecosystems for our customers in the western and eastern world”, Blume said last month. “And if you look at China, the expectations are completely different, especially from the younger customers. They are very tech-focused,” Blume added.

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