Volkswagen resumes production at 22 locations across China

Automotive Industry

Source: Automotive purchasing and supply chain, 2020-03-30

Just two months ago, China was considered the centre of the corona pandemic. Meanwhile, there are signs of relaxation, with the car industry also slowly returning to normality. Production of vehicles and components has resumed at 22 of 24 Volkswagen locations.

“We are cautiously optimistic that the worst effects of the crisis will be behind us in two to three months,” said Stephan Wöllenstein, CEO of Volkswagen Group China. He added that the interest of many customers in buying cars was still limited, with the result that many plants were operating at a reduced capacity. “But we are prepared to increase production if demand picks up.” Only the vehicle plants in Changsha and Urumqi are currently still closed. 

However, Volkswagen Group China sales figures are showing signs of improvement following the Corona-related crash. The overall market trend is pointing slightly upwards. For March, Wöllenstein again expects sales of up to 1m vehicles. This would be a vast improvement on February when only about 250,000 cars were sold across the country. The fact that Volkswagen Group China sales are slightly better than the general trend in this environment is only a small consolation. “There are more and more signs that business is recovering. By the middle of the year, we could be back to last year’s planning. Hope is returning on the Chinese market,” said Wöllenstein.

More than 95% of all Volkswagen Group dealers have reopened their showrooms. Customer frequency is around 60% compared with normal phases. “I expect the car business to reach last year’s level in early summer,” said Wöllenstein. The Volkswagen brand alone is represented in China by more than 2,000 dealers. There are 430 dealerships at Audi, 470 at Škoda and 120 at Porsche.

It remains uncertain to what extent an expected recovery could offset the slump in the first quarter. For the year as a whole, the Group is therefore planning with different scenarios that assume a decline of between 3% and 15% in the Chinese car market.

“The ‘crystal ball’ principle still applies. Precise forecasts are hardly possible at present because developments in the second half of the year depend on many factors that are difficult to calculate,” said Wöllenstein. As examples, he cites the purchasing behaviour of customers when things return to normal, possible special economic stimulus programmes for the Chinese auto industry, and the country’s overall economic development in light of the global corona pandemic.

Together with its Chinese partners, Volkswagen Group is sticking to the announced investments of more than €4bn ($4.4bn) this year. “We assume that the recovery will continue and that we will be operating in a normal market environment again in 2021,” Wöllenstein emphasised. “And China will not lose its status as a powerhouse of the global automotive industry in the long term either. The trends of electromobility and digitalisation will be shaped here.”

Around 40% of the planned investments alone will go into electric mobility. This year, for example, production of new electric models based on the modular electric drive matrix (MEB) is due to start at plants in Anting (SAIC Volkswagen) and Foshan (FAW-Volkswagen). Both plants are specially designed for the production of purely electric cars.

“It is good that we are entering the post-crisis period with strong new models,” said Wöllenstein. The medium-term goal for the expansion of electromobility remains unchanged. From 2025, Volkswagen Group plans to sell 1.5m electric cars per year in China. This is also based on the introduction of the Volkswagen ID. Family, which will be launched this year.

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