How China Is Fueling Volkswagen’s Growth Plans


Volkswagen AG (OTCMKTS:VLKAY) has had a tough last year or more, admittedly due to the dieselgate scandal that has already caused a major dent to the group’s valuation. The company has sold 8.48 million vehicles, up 2.6% year-over-year, through the first ten months of the year. While not much has gone for the company this year, a bright spot has been its growth in China. Volkswagen’s sales in China rose 11.3% to 3.22 million units through October.

According to China Association of Automobile Manufacturers, China’s passenger vehicle sales were up 15.4% year-over-year through October to over 19 million units, buoyed by government tax breaks, and high discounts offered by dealers. This includes a high 20.3% jump in sales in October alone. The Volkswagen Passenger Vehicles brand witnessed an impressive 12.3% growth in the country through the first ten months, which is a positive since the brand has otherwise recorded only a 1% rise in overall vehicle deliveries during the same period. China is Volkswagen’s single largest market, contributing ~38% of the net vehicle deliveries for the company.

As vehicle demand in China continues to remain relatively strong, Volkswagen is also continuing to invest heavily in the country, irrespective of its cost-cutting plans and the aftermath of the emissions scandal. Earlier in the year, the company announced plans to invest over 4 billion euros ($4.75 billion) in China in 2016, spending on its new SUVs and plug-in models in the country. Volkswagen plans to introduce 15 new-energy vehicles within five years in China. The country has emerged as a solid potential market for growth of the EV segment. As the country battles excessive amounts of pollution, the government is providing subsidies for electric cars, which can be as high as $16,000, while local governments are giving lotteries for vehicle registrations to customers that are buying electric vehicles.

Relevant Articles
  1. Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?
  2. Up 50% Over The Last 12 Months, Is Hyatt Stock Still Attractive?
  3. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  4. Up 8% Year To Date As 5G Gains Traction, What’s Next For Verizon Stock?
  5. Up 32% In The Last 12 Months, Where Is BNY Mellon Stock Headed?
  6. Rallying 30% YTD, What’s Spurring The Rally In Applied Materials’ Stock?

And now, the company has announced that its joint venture in China, FAW-Volkswagen, will add five locally-produced Audi e-tron models to its offerings in the country in the next five years, including pure battery vehicles with a range of more than 500 kilometers. [1] One of the main highlights of Volkswagen’s Strategy 2025 is also its push for electric vehicles, which makes more sense for the company at a time when the emissions scandal looms large. From a brand whose image has been tainted on the back of falsification of emissions data, Volkswagen is now looking to do damage control by being more efficient and “environmentally friendly” than ever before.

According to Audi, the brand, along with FAW-Volkswagen, will offer at least one locally-manufactured electrically powered SUV and sedan model in each volume segment by 2025, and this will mean that there will be an e-tron model in each of the six biggest segments. The first locally-produced plug-in hybrid will be the Audi A6 L e-tron, which will be delivered to dealerships before the end of this year. Audi and FAW will also plan to set up a joint company next year focusing on mobility and digital services.

Electric vehicles represent ~0.6% of all global passenger car stock presently, but this category continues to grow by a strong percentage year-over-year (70%, 53%, and 70% in 2015, 2014, and 2013, respectively). [2] More than half a million plug-in electric vehicles were delivered to customers worldwide last year. On the other hand, luxury wings Audi and even Porsche are also pushing to penetrate the electric vehicle market.

Volkswagen hasn’t backed off from investing heavily in China, which could help offset the expected lost sales in the U.S. and Europe, due to the emissions scandal. Emphasis on cleaner technologies also bodes well for the German giant, because this could be where the automotive growth is heading.

Have more questions on Volkswagen? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Volkswagen

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Notes:
  1. Volkswagen press release []
  2. Global electric car sales surpasses half a million in 2015 []