A brilliant orange robotic, 10 toes tall, looms over Volkswagen’s new electrical automotive meeting line in central China. It was imported from Germany. The manufacturing facility’s different 1,074 robots had been made in Shanghai.
Volkswagen used to import shock absorbers from Central Europe for vehicles it makes at Chinese language factories. Now it buys them from an organization in China for 40 p.c much less.
After relying for many years on engineers in Germany to design vehicles for the Chinese language market, Volkswagen has begun hiring for a staff of practically 3,000 Chinese language engineers, which can embody a whole lot transferred from Volkswagen operations elsewhere in China. They’ll design electrical vehicles at VW’s industrial complicated in Hefei, a metropolis in central China.
The brand new technique, which Volkswagen calls “In China, for China,” is one other signal of how China’s commanding lead in electrical autos has upended international auto making. Chinese language automotive manufacturers are showing extra in Germany and all through Europe, inflicting politicians to fret about job losses.
However Volkswagen is doubling down on its enterprise in China, which is the world’s largest automotive market and likewise Volkswagen’s greatest market. VW’s goal is to match the pace and effectivity of Chinese language electrical automotive producers, which have seized a quickly rising share of the Chinese language automotive market. That has triggered gross sales of the German automotive maker’s gasoline-powered autos to plunge in China.
China’s metropolis governments and state-controlled banks have been pouring cash into electrical automotive makers, serving to them construct new factories sooner than their gross sales have grown. The ensuing overcapacity has triggered a worth struggle that has pushed electrical automotive costs down sharply. Volkswagen desires low prices to verify its electrical vehicles may be priced competitively. So it plans to start out manufacturing in Hefei within the coming weeks of its new Tavascan sport utility automobile on the market in China and export to Europe.
“Everyone knows how tough it’s to earn money on electrical vehicles,” stated Ralf Brandstätter, the chairman and chief government of VW’s total China operations.
The necessity to cut back prices is so nice that it has additionally meant painful cuts in Germany — a tough selection for a corporation that has been a pillar of German business for the reason that Nineteen Thirties. The German state of Decrease Saxony owns practically 12 p.c of the corporate. European labor leaders maintain practically half the seats on the corporate’s supervisory board.
Volkswagen is seeking to shrink its pricey, closely unionized work pressure in Europe, in addition to trim its reliance on high-cost European auto components producers. Executives started breaking the information in late November to employees on the firm’s headquarters in Wolfsburg that job reductions in Europe must be a part of a ten billion euro, or $10.9 billion, worldwide cost-cutting plan began earlier this 12 months.
“To extend our effectivity, now we have to scale back our work pressure,” Oliver Blume, Volkswagen’s chief government, instructed the German newspaper Frankfurter Allgemeine Zeitung.
The cuts in Europe and imports from China may produce a double whammy for Germany, the place the automotive business has been a mainstay of the financial system and accounts for practically 800,000 jobs. Trade analysts predict the shift to electrical autos, that are easier to assemble than gasoline-powered vehicles, will trigger that quantity to shrink by 12 p.c.
VW and Chinese language carmakers have begun constructing amenities in China to make electrical vehicles, as an alternative of changing present factories. The brand new factories, for native producers like BYD and Nio in addition to VW in Hefei, are among the many world’s most trendy and extremely automated.
Midea, a Chinese language equipment maker, in 2016 purchased the German firm Kuka, a number one producer of automotive manufacturing facility robots. The brand new VW manufacturing facility in Hefei makes use of robots from Kuka, which has shifted appreciable manufacturing to Shanghai.
Final summer time Volkswagen acquired a 4.9 p.c stake in Xiaopeng, a Chinese language electrical automotive maker that’s significantly robust in instrument panel electronics. And VW is changing European components producers that also provide its Chinese language factories.
“The actually massive potential is the localization, to essentially localize one hundred pc of the components in China,” stated Ludger Lührmann, the chief know-how officer for VW’s operations in Hefei.
Volkswagen’s transfer displays a painful actuality for each conventional multinational automotive firm: They’ve been caught flat-footed by China’s fast shift to electrical vehicles and Chinese language automakers’ success in reducing prices, stated Invoice Russo, an electrical automotive business guide in Shanghai.
Electrical vehicles account for over 30 p.c of China’s automotive market, up from 5 p.c three years in the past. By 2025, VW expects, half the vehicles offered in China shall be electrical.
Multinational firms have lengthy offered the vast majority of China’s gasoline-powered vehicles by means of joint ventures with native automakers. However they promote fewer than 20 p.c of China’s electrical vehicles, and people are principally made by Tesla, the American automaker. The Chinese language electrical automobile producers BYD, Shanghai Automotive Trade Company, Zhejiang Geely, Li Auto and Nio have moved a lot sooner than their European counterparts.
Volkswagen is the longtime chief for gasoline-powered vehicles in China, holding virtually a fifth of the market by means of two massive joint ventures with Chinese language state-owned firms. However it sells lower than 3 p.c of the nation’s electrical vehicles.
VW is racing to catch up. Its new manufacturing facility in Hefei is designed to churn out 350,000 vehicles a 12 months initially, greater than the business normal measurement of 250,000 or so. And the buildings have been constructed with giant expanses of empty area inside, in order that additional tools may be rapidly put in to ramp up manufacturing even greater.
Constructing a manufacturing facility in China, as an alternative of changing present factories, has massive benefits for Volkswagen. Beginning within the Eighties when China started opening to overseas automotive funding, Beijing has required that overseas automakers assemble gasoline-powered vehicles in China by means of joint ventures with its state-owned automakers, and share administration management. Volkswagen owns 40 p.c of one in every of its joint ventures, with First Auto Works, and 50 p.c of the opposite, with Shanghai Automotive.
However Beijing has exempted electrical automotive manufacturing from the three way partnership rule. Volkswagen owns 75 p.c of its electrical automotive manufacturing operation in Hefei — an area associate owns the remainder — and VW absolutely owns its new engineering middle within the metropolis. It has full managerial management of each. Tesla, the main overseas maker of electrical vehicles in China, has operated in Shanghai since 2019 freed from any three way partnership requirement.
International automakers are allowed full possession of factories that make auto components. So changing these to electrical automotive element manufacturing has been extra worthwhile.
Regardless of its aggressive new push in China, Volkswagen should compete with a home auto sector that receives heavy authorities help. Simply 30 miles from its Hefei manufacturing facility, a Chinese language electrical rival, Nio, has opened its second manufacturing facility. Its operation is in some methods much more superior than Volkswagen’s — sections of the meeting line are basically cell and may be rolled to new places.
The native authorities offered the land and the constructing, stated Ji Huaqiang, Nio’s vp for manufacturing. “Nio doesn’t personal the manufacturing facility or the land — it’s renting, however the manufacturing facility was customized constructed for Nio,” he stated.
Nio’s two factories give it the capability to assemble 600,000 vehicles a 12 months, regardless that its annual price of gross sales this autumn is simply about 200,000 vehicles. Nio is nonetheless already constructing a 3rd plant.
Volkswagen executives say that with China doing a lot to construct up its automotive business, they must be concerned. “To construct up a Chinese language automotive business,” Mr. Brandstätter stated, “was a transparent goal at all times of the commercial coverage of the federal government.”
