Volkswagen Considers Selling Another Manufacturing Plant in China Amid Market Challenges
Volkswagen (VW) is contemplating the divestment of another manufacturing facility in China as it grapples with significant market challenges. Recent reports indicate that the company is considering selling its Nanjing plant, located northwest of Shanghai, following the earlier sale of a controversial factory in Xinjiang. Sources suggest that while a sale is deemed the more economically viable option, closure remains a possibility if necessary.
The Nanjing facility, constructed in partnership with SAIC in 2008, has an annual production capacity of 360,000 vehicles and is responsible for assembling models such as the VW Passat, Skoda Kamiq, and Skoda Superb. Due to low utilization rates, discussions regarding the future of the plant have intensified. The plant's relatively central location has posed limitations on its operational adaptability, further complicating the situation.
VW's market share in China has experienced a dramatic decline, prompting the company to consider shedding more of its 26 Chinese vehicle manufacturing sites. This decision could particularly impact facilities producing Skoda vehicles, which have seen a staggering drop in sales. Prior to the COVID-19 pandemic, Skoda sales in China exceeded 300,000 units annually; however, current figures reflect a mere 11,000 units sold so far this year.
The broader Volkswagen group is not immune to these market pressures, with overall sales in China plummeting. Initial projections following the pandemic suggested that VW would manufacture five million vehicles annually, aiming for six million by 2030. In stark contrast, the current forecast for this year has been revised down to approximately 2.5 million vehicles, a significant downturn from the more than four million units sold in both 2018 and 2019.
This downward trajectory has resulted in a substantial decrease in market share, which fell from 19% in 2019 to around 12% in 2023. The decline continued throughout this year, with the market share dropping to 10% in April and further to 9% by October. The company's presence in the electric vehicle sector has also diminished, with a mere 1.5% market share recorded in October.
In response to these challenges, VW is implementing various strategies aimed at revitalizing its market position. The company plans to enhance local development of vehicles and leverage the technological expertise of its joint venture partner, XPeng, for future electric models. Nevertheless, VW has warned of a prolonged recovery period, estimating at least two more years of significant difficulties.
Concerns about potential plant closures are not limited to China; similar threats loom over VW's operations in Germany. Reports indicate that at least three German facilities and tens of thousands of jobs are at risk. Volkswagen cites high operational costs and low utilization rates as primary reasons for these planned reductions. In response, labor representatives are organizing widespread strikes to advocate for worker rights amid these uncertainties.
In light of these developments, German Chancellor Olaf Scholz has intervened, urging VW to reconsider any plans for plant closures. He emphasized the importance of collaborative decision-making among stakeholders and expressed that shutting down facilities would not be an appropriate course of action, particularly given that past managerial decisions have contributed to the current predicament.
As Volkswagen navigates these tumultuous waters, the automotive landscape in China remains a focal point of concern, with the company striving to adopt effective measures for recovery while addressing the complexities of its operations both domestically and internationally.
