Volkswagen’s (VW) sale of a controversial plant in China will come as a relief to the German carmaker, as it rationalises its flagging operation amid cutthroat competition in the world’s largest automotive market, industry observers say.
The divestment could see international carmakers reduce their capacity by as much as 10 million units on the mainland as they continue to lose market share to more nimble local electric vehicle makers amid an accelerated pace of electrification in China, according to UBS.
VW announced on Wednesday that the plant in Urumqi, the capital of the Xinjiang Uygur autonomous region in western China, and two test tracks in Turpan, Xinjiang and Anting, Shanghai, will be sold to Shanghai Motor Vehicle Inspection Certification, a subsidiary of Shanghai Lingang Development Group.
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All three assets are owned by VW and its Chinese partner SAIC Motor. Details of the transaction were not disclosed.
A file photo from September 2018 shows VW cars being assembled at the SAIC Volkswagen plant in Urumqi. Photo: Reuters alt=A file photo from September 2018 shows VW cars being assembled at the SAIC Volkswagen plant in Urumqi. Photo: Reuters>
“By selling the plant in Xinjiang, VW can quell fears about political risks and cut excess capacity to adapt to a changing market where its petrol vehicles are no longer easy sales,” said Qian Kang, who owns car-component businesses in eastern Zhejiang province. “After all, the factory has been idle over the past five years.”
VW, one of the largest carmakers in mainland China for the past four decades, has been under pressure to dispose of the assets in Xinjiang amid controversies about China’s alleged human rights violations against Uygur Muslims in Xinjiang. It will no longer have a presence in the region following the sale.
VW said in a statement that the transaction was undertaken because of “economic reasons”.
“The site has now been sold by the joint venture [with SAIC] as part of the realignment,” the statement said. “The same applies to the test tracks in Turpan and Anting.”
Chinese foreign ministry spokeswoman Mao Ning told a press conference in Beijing on Thursday that some foreign politicians and organisations had spread false information about Xinjiang, including the use of forced labour.
“China will open up further to drive high-quality economic growth and the country will provide more opportunities for foreign businesses, including German companies, to invest and operate in China,” she said.
At the same time, VW said that it would extend its partnership with SAIC by another 10 years to 2040, as part of its efforts to regain pole position in China’s automotive market.
VW, which also has partnerships with state-owned FAW and JAC Group, to make petrol cars and EVs, is likely to lose its title to BYD as China’s largest carmaker after deliveries slumped 8.5 per cent in the first 10 months of 2024.
Through its mainland ventures, VW sold 2.23 million vehicles to Chinese buyers from January to October, compared with BYD’s 2.9 million, according to data provider CnEVPost. BYD’s sales jumped 35 per cent in the same period.
On the mainland, EVs – pure electric and plug-in hybrids – have outsold conventional petrol vehicles since July, buoyed by drivers’ increasing penchant for intelligent and environment-friendly cars.
International carmakers are unable to develop and make electric cars that are to Chinese consumers’ liking, according to a sales director at Shanghai-based dealer Wan Zhuo Auto. It will be some years before companies like VW and General Motors (GM) catch up with their Chinese rivals, he added.
It has been reported that GM is in talks with its joint venture partner SAIC on plant closure and asset disposals amid falling sales on the mainland.
The venture between SAIC and GM reported sales of 533,152 units between January and October this year, a decline of 32.8 per cent year on year.
On Monday, Paul Gong, head of China automotive research at UBS, said diminished demand for foreign brands would lead to an overcapacity of 10 million vehicles on the mainland.
These carmakers are also at risk of losing up to US$20 billion in profit annually in China amid heightened competition with domestic rivals and a rapid market shift towards EVs and smart vehicles, he said.
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