China must remain key focus for Volkswagen, senior executive says

Asian nation vital for car maker's global ambitions, VW's departing China chief executive says

The Volkswagen factory, operated with local partner SAIC Motor, in Shanghai, China. Bloomberg

Volkswagen must maintain its focus on China to continue being one of the world’s leading car makers — no matter who its chief executive is — said the person who has led the company’s operations in the nation since 2019.

Stephan Wollenstein, who first came to the country in 2004 and will step down as China chief executive at the end of this month, said he’s witnessed a “fundamental paradigm shift” in the industry, which has forced global car makers including VW to focus on China, now the world’s biggest car market.

“If you’re not in China and if you don’t cope with China’s speed and treat China specifically, I have my doubts that you will be a leading manufacturer in the next five to 10 years,” he said.

VW has a “pretty solid projection” that China’s car sales will grow to 28 million to 30 million by 2030, accounting for about 30 per cent to 35 per cent of the global market, Mr Wollenstein said in an interview.

China is a key market for VW, accounting for about 40 per cent of its global deliveries in the first quarter. The company employs more than 90,000 people in the country and operates more than 40 vehicle and components factories along with partners.

After shipping a record 4.23 million vehicles to China in 2019, VW’s sales slid to 3.3 million in 2021 as the pandemic took a toll. Deliveries have continued that downwards trend, falling 20 per cent to 1.47 million in the first half of this year as Covid outbreaks in Shanghai and Changchun disrupted production.

Nevertheless, the company is sticking to its annual sales target of 3.8 million, as pent-up demand drives a rebound in sales.

Mr Wollenstein said closed-loop systems that enable staff to work during lockdowns by living on site are “not sustainable at all” if factories can’t get parts delivered. They only work in a situation where a factory is stocked with parts and can keep operating, he said.

Supply chain snarls during lockdowns had a knock-on effect on many manufacturers in China.

The changing of the guard at VW’s China unit comes amid upheaval at the head office, with Herbert Diess last week replaced as chief executive by Porsche chief Oliver Blume in an abrupt shake-up.

Mr Diess has called China the company’s “second home market”, saying VW’s business there generates more than €4 billion ($4.2bn) in profit every year.

The global car market has changed massively during Mr Wollenstein’s 14 years in China, he said, and it is now “the powerhouse of the next generation of automotive trends”, including electric vehicles and connected and intelligent cars.

To that end, VW is realigning its China management, led by incoming chief executive Ralf Brandstaetter, to give it more autonomy and streamline decision making.

China’s consumers are being spoiled for choice, particularly in EVs, from upstarts Nio and Xpeng whose feature-packed cars and lifestyle accessories are attracting customers; BYD, whose sales of pure-electric and plug in hybrids are surging, and EV pioneer Tesla, which has bounced back strongly from Covid lockdowns.

“This is all in the race of standing out and making a difference to be seen and having a chance to last,” Mr Wollenstein said of his Chinese competitors.

VW plans to hire 1,000 engineers in China by the end of this year, including in software, and will look at acquisitions and partnerships to expand, he said. VW’s software unit Cariad also entered China this year, its first step outside Europe.

“I am often joking that I’m not so sure whether we are the most international Chinese car maker or the most Chinese international car maker,” Mr Wollenstein said.

The company has also taken steps to shore up supply chains after being hit by the global semiconductor shortage and surging competition for metals used in EV batteries, forming a partnership with STMicroelectronics to jointly develop chips and striking agreements with Zhejiang Huayou Cobalt and Tsingshan Holding Group to help secure nickel and cobalt.