Volkswagen Plots Major China Push as Tensions Rise at Home

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A year into his tenure, Volkswagen AG Chief Executive Officer Herbert Diess is entering critical months as he seeks to expand the carmaker’s sprawling Chinese operations while containing labor friction that’s been rising at home.

The Chinese market is leading a global shift toward electric vehicles and will take on a bigger role for the German automaker as both a production hub and a research center, Diess told reporters ahead of the China auto show in Shanghai. The company plans to deliver 22 million battery-electric vehicles by 2028, with more than half of them made in China.

“Our plan is to present the biggest e-car portfolio in the market, covering all relevant vehicle segments,” Diess said in a speech Monday.

VW is having “in-depth discussions” to expand its three local joint ventures, China chief Stephan Wollenstein said separately, part of a strategy review due to be completed by early next year. The company will work with its partners on mobility offerings and a smaller electric-car platform for China’s megacities, Diess said.

The CEO’s chances of boosting VW’s equity ties in China have risen as authorities ease restrictions for foreign manufacturers and a market stall adds to pressure on local peers.

“The Chinese auto market is in a critical transformation phase,” as growth slows, 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.”

VW has ventures 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. Those two two partners will be involved in an effort to develop new mobility offerings, Diess said Monday.

VW is also exploring options to acquire a stake in its third partner, Anhui Jianghuai Automobile Group Corp., which is much smaller than SAIC or FAW. Diess said Monday that its SEAT unit and JAC will take the lead on designing small electric cars for urban journeys in China.

“Especially for Chinese megacities, we feel the urgent need for clean mobility,” Diess said. The project will involve a smaller electric-vehicle architecture “that complements our existing platforms.”

After Chinese auto sales posted their first annual decline in decades last year, VW said Monday that demand in the market is picking up. VW brand global sales chief Juergen Stackmann told reporters a reduction in value-added tax is helping sales, and he expects car-sales in China to be roughly even with 2018 despite a decline in the first quarter.

Volkswagen shares were up 0.8 percent on Monday at 154.56 euros as of 2:56 p.m. in Frankfurt.

European Woes

China accounts for 40 percent of the VW group’s global deliveries and a large chunk of profit. The two main joint ventures generated another year of double-digit pretax profit margins in 2018 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, have reignited tension with powerful German labor leaders. Diess, 60, didn’t address the domestic wrangling on Sunday, while saying the newly unveiled I.D. Roomzz full-size electric SUV “embodies the transformation of our company.”

(Updates with talks status from third paragraph.)

To contact the reporter on this story: Christoph Rauwald in Shanghai at crauwald@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann

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