Tesla, China may leave VW on a road to nowhere


Biding his time: Blume speaks during an event at the 2023 Munich Auto Show in Germany. The Porsche CEO and his team are banking on Volkswagen’s vast resources paying off as electric vehicles go more mainstream. — Reuters

MUNICH: Shortly after taking the most important job in German industry, Volkswagen AG chief executive officer Oliver Blume got some bad news.

A top executive had been dispatched to China to review the competitive landscape and his assessment was grim.

At the company’s headquarters in Wolfsburg, a sprawling factory complex the size of Monaco, he told his new boss that Europe’s largest carmaker was losing the electric vehicle (EV) race in its most important market and had no prospect of catching up on its own.

Volkswagen had fallen behind in China during the pandemic and by the time the country began to reopen, BYD Co, Nio Inc and other local brands had doubled the number of hybrid and electric models, with mostly cheaper and better offerings.

Those new competitors are now turning towards Europe as China’s economy stumbles. The extra pressure comes as Volkswagen (VW) and other German manufacturers feel the strain of high energy prices in the fallout from the country’s long reliance on Russia.

Half a world away, Tesla Inc has continued to expand and has laid claim to leadership in automotive innovation, undermining the German giant’s cash cow Audi, alongside Mercedes-Benz and BMW.

Instead of sleek Audi sedans claiming “Vorsprung durch Technik,” Tesla’s have become the choice for consumers wanting to show they’re on the cutting edge.

The competitive vise squeezing Volkswagen from top to bottom and from the US to China might evolve into its biggest crisis since the 2015 diesel scandal.

The issues could be even harder to overcome and reflect the risks looming over Europe’s largest economy.

“The auto industry is faced with the question of whether and how we will be a global leader in the future,” German Foreign Minister Annalena Baerbock said at the Munich car show last week.

“For our nation, where the auto industry accounts for a large share of value creation, this is not just an economic issue, but also a question of security.”

The time for VW to get its EV strategy right is running out. An inflection point is coming, and the group risks getting confined to the waning market for combustion engine cars and lacking the volumes to support its bloated structure.

Its struggles are evident in a market value that’s less than one-tenth of Tesla’s even though revenue is more than triple that of its Texas-based rival, and the competitive pressure is evident in the aggressive price war in China, where many brands are selling at a loss.

The company has already spun off minority stakes in sports car-maker Porsche and its heavy trucks unit Traton SE, and calls for a deeper breakup may grow louder if it starts losing market share in Europe, said Daniel Roeska, an analyst with Bernstein.

But Blume and his team are banking on Volkswagen’s vast resources paying off as EVs go more mainstream.

“It’s a marathon, and not everyone in a marathon who comes out fastest will be seen first or at all at the finish line,” said Ralf Brandstätter, Volkswagen’s China boss.

At Europe’s biggest auto exhibition this year, China’s carmakers showed that they’re ready to take the fight to Germany.

Their ranks at the Munich show more than doubled compared with 2021, and BYD positioned its Seal sedan, which will start at around €45,000 when it goes on sale later this year, as a direct rival to Tesla’s Model 3 and several of Volkswagen’s electric cars.

VW symbolises the “economic miracle” of Germany’s post-war recovery like few other companies.

The ongoing challenges of company and country are still equally intertwined. Both are heavily exposed to the risks posed by China’s growing industrial and political ambitions.

The Asian superpower is Germany’s largest trading partner and the source of nearly 40% of VW’s global deliveries last year.

Also, the struggle to pivot to cars that rely on software more than horsepower is indicative of Germany’s difficulties adapting to the digital era.

Like Germany, VW is complex and slow-moving. The company employs nearly 700,000 people across more than 100 factories around the world.

It makes everything from exotic Lamborghini supercars to thrifty Skoda hatchbacks and powerful Scania trucks.

Complicated internal power dynamics bog down change, while hubris has been fuelled by decades of success. — Bloomberg

Follow us on our official WhatsApp channel for breaking news alerts and key updates!

   

Next In Business News

Monsoon season is great news for stocks
Boeing shareholders vote to keep departing CEO Calhoun on board
BHP debates improved bid
Nippon Steel set to meet stakeholders of US Steel deal
Global stock markets on record-hitting spree
S&P profit recovery revs up on Big Tech and strong consumer run
Oil gains 1% on hopes of firmer demand
Muhibbah rides on Cambodian tourism uptick
Feytech gears up for expansion to meet growing demand
Ready to rise up the ranks again

Others Also Read