Volkswagen's $3.5B gamble: Can it win back share in the competitive Chinese market

HEFEI, China (AP) — Volkswagen is making a large stake successful China, the largest and 1 of the astir cutthroat car markets successful the world. The question is whether it volition work.

The German carmaker, which erstwhile dominated the marketplace with a much than 50% share, has invested 3 cardinal euros ($3.5 billion) successful a sprawling probe and improvement halfway — its largest extracurricular its location state — successful Hefei, a low-key cardinal China metropolis of 10 cardinal people.

It’s a oversea alteration from however overseas automakers operated successful China for decades by making cars they developed overseas, sharing their exertion with section partners. That strategy has been shoved speech by fast-rising section competitors who person sharply chopped into the income of overseas brands.

“This concern exemplary is present gone,” Thomas Ulbrich, the main exertion serviceman of the Volkswagen Group successful China said.

The Chinese user is king

In what Ulbrich calls a paradigm shift, Volkswagen started its latest overhaul of its attack to China successful 2022.

It is processing vehicles specifically tailored to Chinese drivers — cars that volition apt ne'er beryllium seen connected European roads , though they whitethorn marque their mode to markets successful the Middle East and Southeast Asia.

As the caller models rotation out, Volkswagen volition find retired if the concern volition wage disconnected by helping it to drawback up with the likes of Chinese makers BYD and Geely and triumph backmost marketplace share.

Such a strategy is cardinal to regaining competitiveness wrong China, said Rella Suskin, an equity expert astatine Morningstar covering the European automotive sector.

But, she predicted, “it volition alteration them to support marketplace stock levels successful enactment with existent levels, alternatively than let them to regain the marketplace stock that has been mislaid implicit the past fewer years."

The question is whether it tin marque wealth successful a hypercompetitive marketplace that has driven prices down to bankrupting levels.

Audi, portion of the Volkswagen Group, led the mode with this year's instauration of a caller marque dubbed “AUDI” — its sanction successful superior letters. VW is gearing up to motorboat caller 2026 models developed “in China, for China,” arsenic the carmaker likes to say.

“It’s a million-dollar question whether this strategy volition wage off,” said Claire Yuan, manager of firm ratings for China autos astatine S&P Global Ratings. “We person to monitor, but I deliberation they are connected the close way of catching up successful the race.”

China velocity leaves competitors successful the dust

Foreign automakers fell down due to the fact that of melodramatic changes successful the Chinese marketplace implicit the past 5 years.

Electric vehicles person changeable up to astir fractional of caller car sales. And buyers expect them to travel with the latest integer features, from large iPad-like interaction screens to autonomous driving capabilities specified arsenic effortless backing into a parking space.