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

German car concern Volkswagen is losing market share in China to local carmakers. China is the group’s largest market, and the decline in share represents one of the most difficult challenges for new group boss Oliver Bloome. The Wall Street Journal (WSJ) writes about it on its website.

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

Blume became the head of the concern this September. In addition to a decline in market share in China, it also has to deal with rising energy costs, persistent supply chain issues and delays in developing its own software, which have disrupted the launch schedule for new models. However, China has long been an important source of revenue for the company, which is why the decline in Chinese market share is particularly worrisome, the WSJ writes.

Last year, China accounted for 37 percent of the group’s new car sales and 15 percent of its gross profit from activities focused on passenger cars. Volkswagen operates 40 manufacturing plants in China, either alone or through joint ventures. The former head of the group, Herbert Diess, even referred to Volkswagen as 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 fundamental importance to Volkswagen and at the same time represents the biggest risk for this company,” said Noah Barkin, an expert on relations between Europe and China at the Rhodium Institute.

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

The weakening of the Volkswagen Group’s position in China was first manifested 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 sports utility vehicle on the Chinese market also brought disappointment. According to some analysts, this car is too big by Chinese standards, writes WSJ.

In response to the weak sales of ID.4 cars, the former head of the Diess Group made changes in the management of the Chinese activities. In August, Ralf Brandstätter, who previously headed the flagship VW brand, was given the task of ensuring the revival of these activities. After a weak start to the year, the group’s sales in China increased by 26 percent in the third quarter. Sales of ID.4 cars and other electric cars from the Volkswagen Group also recorded an increase, but they still lag behind the competition, writes the WSJ.

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

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In an effort to reduce the competition’s lead, Volkswagen’s software division invested one billion dollars (over CZK 23 billion) in the Chinese technology company Horizon Robotics. It also spent 1.3 billion euros (roughly CZK 32 billion) on a 60 percent 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 younger customers. They are very technology-focused,” Blume added.

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