In a recent trip to China, a senior Volkswagen executive delivered a sobering message to the new recently-appointed CEO Oliver Blume: the German automotive giant is falling behind in the electric vehicle (EV) race in one of its most critical markets. The gap between VW and its Chinese competitors like BYD Co. and Nio Inc. has only widened during the pandemic. As China resumes normal activities, these brands are not just securing their local markets but also setting sights on Europe, creating additional strain on Volkswagen and its fellow German automakers.
2024 Volkswagen ID. Buzz | Photo: Volkswagen
As the new competitors enter the European market, VW finds itself caught in a competitive vise, from the United States to China, posing possibly its biggest crisis since the 2015 diesel scandal. Further ratcheting up the pressure, China’s transition to EVs is outpacing other nations due to its aggressive government policies. By mid-decade, electric cars are expected to make up half of all auto sales in China. Volkswagen’s struggle to pivot to a software-centric automotive industry reflects not just the company’s issues but also indicates broader challenges for Germany in adapting to the digital era.
“The auto industry is faced with the question of whether and how we will be a global leader in the future,” said German Foreign Minister Annalena Baerbock at the recent Munich car show as reported by Bloomberg.
Volkswagen’s financial performance further highlights the crisis. Although it has more than triple the revenue of Tesla, VW’s market value is less than one-tenth that of the American EV leader. Even in China, an aggressive price war is forcing many brands, including VW, to sell at a loss.
However, the company is far from giving up. Volkswagen recently invested $700 million for a near 5% stake in Xpeng Inc., a Chinese EV maker, in a determined effort to accelerate its electric vehicle program. Additionally, VW has several ongoing joint ventures and new partnership agreements with Chinese battery makers and software developers.
Despite the challenges, VW’s deep pockets offer some latitude. The company’s auto division had €33.6 billion in net liquidity at the end of June. Moreover, the company has been considering other strategic options, including possible asset sales. Volkswagen is betting that its enormous resources will eventually pay off.
“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.
