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VW Sees China Recovery Picking Up Pace

VW Sees China Recovery Picking Up Pace

Volkswagen AG expects second-half sales in China to approach the year-earlier level as premium brands such as Audi and Porsche lead a recovery from the coronavirus pandemic.

In the first half, the automaker sold about 1.59 million vehicles across all its brands in China, down 17% from a year earlier, Stephan Wollenstein, VW’s China chief, said Friday at a media briefing in Beijing. The industry’s total sales shrank by 22%, helping market leader VW boost its share to about 20%, he said.

“We saw the premium market in China was recovering much faster than the normal market,” Wollenstein said. “We saw really strong sales of Audi, Porsche and Bentley. We expect that the second half is almost of a level of last year.”

VW’s sprawling manufacturing network in China gradually resumed output in recent weeks, while the coronavirus continued to spread across other regions. Even with demand picking up from the depths seen early this year, the China Association of Automobile Manufacturers forecasts a 10% to 20% decline in vehicle sales this year to the lowest level since 2014.

The automaker’s global deliveries slumped 27% in the first half to 3.89 million cars, trucks and motorbikes, and by almost 18% in June to 804,100 vehicles, VW said in a statement Friday. Porsche managed to limit its sales drop to 12% in the first six months, but the main VW passenger-car brand, Audi and Skoda all suffered declines of more than 20%.

Electric Optimism

The German manufacturer is optimistic about electric-vehicle demand in China even as sales have fallen after the government reduced subsidies last year, Wollenstein said. While many EV startups have gone out of business, others, such as Tesla Inc., are performing better.

Total industry sales of EVs in China are expected to be about 1 million units this year, similar to the 2019 level, Wollenstein said. VW is sticking to its plan to sell 1 million to 1.5 million EVs by 2025 and increase its revenue from the business to 20% to 25% of its total in China, he said.

VW plans to introduce two new electric ID models later this year in China and a couple more by next summer at the latest, Wollenstein said. The models will be built locally, he said. VW hasn’t made any changes to its EV investment plans, Wollenstein said.

“The success of Tesla was never subsidy-driven unlike almost all other brands,” Wollenstein said. “This leads me to the conclusion if you have a strong brand and attractive product -- which we are very confident we are able to offer with the ID family coming to China -- we have a chance to make our way in the EV market.”

Shoppers Return

Pent-up demand and consumers seeking to avoid public transport to reduce infection risks helped lure customers back into showrooms after lockdown measures eased. VW has started new initiatives in China to sustain sales, including delivering disinfected cars to customers’ homes for test drives and boosting hygiene measures in dealerships.

But economic jitters still weigh on consumers’ willingness to invest in big-ticket items like cars. China’s gross domestic product expanded 3.2% in the three months to June from a year ago, reversing a 6.8% decline in the first quarter. However, the world’s second-biggest economy remains 1.6% smaller than a year ago.

Success in China is critical for the world’s largest automaker by sales volume. Its joint ventures also generate dividends that help mitigate the financial hit triggered by the virus crisis. In May, VW expanded its China footprint when it became the biggest shareholder of battery company Gotion High-Tech Co. and reached a deal to acquire a 50% stake in its smallest local partner Anhui Jianghua Automobile Group.

It also operates two larger joint ventures, with SAIC Motor Corp. and FAW Car Co.

Hong Kong Review

In Hong Kong, VW is evaluating whether to keep its assets intact or go back to working with partners as demand has waned in recent years, Wollenstein said, adding that the review isn’t driven by recent political issues.

Hong Kong has been “a bit of a disappointment” for the auto business, Wollenstein said. The business environment, “at least for a volume-brand like Volkswagen, is constantly going down.”

©2020 Bloomberg L.P.