Volkswagen CEO plots major China push as trouble looms at home

Herbert Diess Photographer: Angel Garcia/Bloomberg

FRANKFURT: A year into his tenure, Volkswagen AG chief executive officer Herbert Diess is entering critical months as he seeks to craft a review of the carmaker’s sprawling Chinese operations while containing tensions at home in Germany.

“China emerged as a powerhouse of the automotive industry,” Diess told reporters late Sunday at a presentation near Shanghai.

The country is expanding its role as a production hub and VW will also allocate more research and development operations to China, he said.

China plays a key role for the world’s biggest automaker because of VW’s large footprint in a market that’s set to lead the industry’s shift toward electric vehicles, Diess said.

“As a brand, we want to be number one in terms of electric mobility in China and beyond,” he said.

Last month, Diess indicated that VW is considering the option of increasing stakes in local joint ventures to expand in the world’s largest auto market, part of a strategy review due to be completed by early next year.

His chances of boosting VW’s equity ties in China may be the best yet as Chinese authorities ease restrictions for foreign manufacturers and slowing market growth adds pressure on local peers.

“All three joint ventures will benefit” as VW intends to “do more with all of them,” Diess said on Sunday.

‘Transforming changes’

VW has ties with SAIC Motor Corp and FAW Car Co, two of China’s largest manufacturers, after being one of the first foreign automakers to arrive in China more than three decades ago.

Diess recently praised the two joint ventures as group leaders in productivity, quality and profitability.

“The Chinese auto market is in a critical transformation phase as the period of strong growth over more than two decades nears its end,” said Stefan Bratzel, a researcher at the Center of Automotive Management in Germany. “The transforming changes will come with a consolidation of the domestic industry in China.”

As part of the strategy review, VW is exploring options to acquire a stake in its third partner Anhui Jianghuai Automobile Group Corp, which is much smaller than SAIC or FAW.

Any broader initiative would still have to involve those two as well.

“We have a lot to – and together we can be the strongest alliance in the industry,” Diess told the company’s staff newspaper in March. “This is a great opportunity for us and we need to take advantage of it.”

China profits

The need is evident as China accounts for 40% of the VW group’s global deliveries and a large chunk of profit.

The two main joint ventures raked in double-digit pretax profit margins in 2018 for another year despite the market’s decline, according to a presentation published on the corporate website.

The robust Chinese profits contrast with squeezed returns at home in Europe, where regulators embarked on a fresh round of tighter emissions limits.

VW is pushing for deeper cuts in its German workforce to meet regional targets and free up more funds for future technologies.

VW’s woes in Europe, highlighted by costly struggles to adopt stricter emission tests and delayed vehicle projects like the next-generation Golf hatchback, reignited tension with powerful German labour leaders.

Diess, 60, didn’t address the domestic wrangling on Sunday, while saying the newly unveiled ID Roomzz full-size electric SUV “embodies the transformation of our company.”