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Germany’s Auto Giant Switches Focus to China NEV Market

January 12, 2021

Volkswagen, Germany’s largest company, knows where its future lies. The Wolfsburg-based giant, with quarterly revenues of $69 billion, has committed $91bn to electric vehicles (also shortened to NEVs, or new energy vehicles) by 2025 – double that of second-place compatriot Daimler.

And it knows where that NEV battle will be won: China. VW already sells around 40% of its 11m vehicles in the Middle Kingdom, alongside three joint ventures. By 2035 China will buy an estimated 50 million NEVs per year. That’s nearly as many as the global car market today. By then, Volkswagen wants its entire range to be offered as NEVs.

That is a huge undertaking. But it is a necessary one. China has been VW’s biggest market for over a decade. Volkswagen chief Herbert Diess admitted in 2019 that his company’s future would be decided in China. With Tesla and a glut of Chinese startups hot on his heels, Diess has put his foot on the electric pedal.

The biggest issue in securing an NEV future is batteries. China has a stranglehold on the global supply chain of minerals required to build electric motors. Getting ahead of this, last year VW invested $2.33 billion in a pair of Chinese NEV players: JAC, which was already a partner, and Guoxuan, a battery company.

Elon Musk’s Tesla may have built China’s first fully foreign-owned factory, the Gigafactory 3, outside Shanghai. And NEV startups such as NIO, Li Auto and Xpeng have impressed customers. But Volkswagen’s long history in China—it was the nation’s first foreign automaker in 1978—and its strong brand, put it in a commanding position with the right acquisitions.

“The key in China is to lower the cost of manufacturing the electronic cars,” says Bo Kuan Chen, an analyst at Shanghai-based Daxue Consulting. “But the peak technology is the battery: trying to develop batteries with much higher quality and lower costs.”

VW’s 2020 buys “give them a leg up,” adds Beijing auto consultant Tu Le, “but less about the nostalgia and more about its capabilities because they’ve been here the longest, so they have the largest footprint.”

With GM, Daimler and BMW sales flagging relatively, and Chinese startups set to emerge and fail in the early stages of China’s NEV revolution, it seems VW and Tesla will fight it out for market dominance.

In Wolfsburg, “Mission T” aims to streamline Volkswagen, take on software experts and become more like a Silicon Valley platform, than a German engineering behemoth. VW has already offloaded luxury supercar brand Bugatti to Croatian NEV firm Rimac. Other top-end marques will surely soon be sold too.

VW is “better off trying to leverage their current advantages to carve out their own place in the market,” says Le. “Diess is saying it. Elon is and has been already doing it.” While Tesla has SolarCity, SpaceX and even flamethrowers, Volkswagen has cars and little else. Brand strengthening, therefore, will be key heading into the next 12 months.

Can an 87-year-old company with over 650,000 staff become a software startup in the mould of Silicon Valley? 2021 will show. Should Volkwagen move in a typically lumbering German industry fashion, it may already have lost the race for China by 2022.

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Filed Under: Asia, Clean Tech, Consumer, Europe, Features, Opinions, Top Story

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