Volkswagen plots major China push as trouble looms at home

Bloomberg

A year into his tenure, Volkswagen CEO Herbert Diess is entering critical months as he seeks to expand the carmaker’s sprawling Chinese operations while containing tensions at home in Germany.
The Chinese market is leading a global shift towards electric vehicles and will take on a bigger role for the German automaker as both a production hub and a research-and-development centre, Diess told reporters at a presentation near Shanghai. “China emerged as a powerhouse of the automotive industry,” Diess said. “As a brand, we want to be number one in terms of electric mobility, in China and beyond.”
Diess indicated last month that VW is considering increasing local joint-venture stakes to expand in the world’s largest automobile market, part of a strategy review due to be completed by early next year.
At the same time, he’s planning cutbacks in Germany to free up more cash to invest in the company’s ambitious technology shift.
His chances of boosting VW’s equity ties in China have risen as authorities ease restrictions for foreign manufacturers and a slowing market adds to pressure on local peers. VW intends to do more with “all three joint ventures,” Diess said.
After Chinese auto sales posted their first annual decline in decades last year, VW said that demand in the market is picking up. VW brand global sales chief Juergen Stackmann told reporters a reduction in value-added tax is helping sales, and he expects car-sales in China to be roughly even with 2018 despite a decline in the first quarter.

Domestic Consolidation
“The Chinese auto market is in a critical transformation phase as the period of strong growth over more than two decades nears its end,” said Stefan Bratzel, a researcher at the Center of Automotive Management in Germany. “The transforming changes will come with a consolidation of the domestic industry in China.”
VW has ties with SAIC Motor Corp and FAW Car Co, two of China’s largest manufacturers, after being one of the first foreign automakers to arrive in China more than three decades ago. Diess recently praised the two joint ventures as group leaders in productivity, quality and profitability.
As part of the strategy review, VW is exploring options to acquire a stake in its third partner, Anhui Jianghuai Automobile Group Corp, which is much smaller than SAIC or FAW.
Any broader initiative would still have to involve those two as well.