VW plays ‘catch-up’ in China BEV market

German OEM Volkswagen saw BEVs make up 7pc of its total Chinese sales in the third quarter, up from just a 3pc share in Q1. But the firm’s CFO Arno Antlitz still warns that the firm needs to undertake an “ambitious catch-up programme in China” on BEVs.     

While VW’s overall sales in China over the first nine months of the year were down by 3pc year-on-year to c.2.3mn vehicles, “BEV volume growth in the Chinese market was slightly positive after nine months, with double-digit growth in Q3 standalone, and momentum thus remains positive”, Antlitz says. BEV volumes sold increased from 22,000 units in Q1 to 55,000 units in Q3.    

“In BEVs, we see a very competitive pricing environment, and we launched a holistic programme to improve our product substance,” Antlitz says. This includes boosting VW’s advanced driver assistance systems (ADAS) to level 2++, improvements to in-car infotainment, and increasing the competitiveness of battery cost with a lithium iron phosphate (LFP) solution.

Battery chemistry

“Today we are one of the only few competitors that have only expensive NMC batteries. We will bring LFP batteries. Until we have all these ingredients in place, we make a deliberate decision between margin and market share in the EV business.”

Increasing the competitiveness of the firm’s MEB+ and PPA EV battery platforms — ahead of their late-decade replacement with the SSP platform — is “really at the heart of our strategy”, Antlitz says. It makes up a third pillar alongside better ADAS and infotainment — with only a fourth half-pillar devoted to VW’s partnership with Chinese EV maker Xpeng.

“We have an NMC battery, which is an expensive chemistry. Yes, we have a good range, but expensive chemistry. We will move also to more market standard chemistries — LFP, which is a chemistry that is cheaper and which gives us also more cost competitiveness,” Antlitz says.

“And if we take these three measures together, we are confident that — together with new cars we bring to the market on the MEB — the competitiveness on current MEB cars will also significantly improve over the next two years and bring real momentum,” he predicts.

VW has faced some analyst scepticism about two planned models for the Chinese market that will be released used Xpeng technology, fretting that this amounts to a VW admission that even MEB+ is not fit for purpose as the basis for producing affordable EVs. Antlitz looks to head off this criticism, acknowledging that “on top, we bring two models from the joint venture with Xiaopeng”. “But the majority of the improvement comes really from our own global platforms,” he maintains.

Nonetheless, VW will need time to implement its catch-up strategy. “And that might lead to even slightly higher market share losses in the next one or two years, depending on the situation,” Antlitz admits, predicting “there might be even a small market share loss next year in China”.

“And then we will catch up from, I would say, 2026 onwards with full competitiveness with PPE cars in China, and with the new models based on the co-operation with Xiaoping,” he continues.

Price cuts

While VW continues to preach Chinese price discipline, Stephen Reitman, automotive equity analyst at bank Societe Generale, notes that “pricing actions [VW has] taken on the ID.3 specifically, selling the car for c.€21,000 equivalent, is a very attractive price level”.  He suggests volume impact on ID.3 sales “has been immense” — with a rise from 2000 units/month to almost 9,000 units/month in terms in retail sales.

But the German firm is reluctant to commit to wider price cuts across the ID family. “We can see from the P&L of a lot of players in China, price pressure also translates into margin for BEVs,” Antlitz says.

“This is the reason why we deliberately make choices in terms of volume and how much we want to sell — keeping momentum up, on the one hand, and on the other hand, protecting our margin.”

The finance chief does, though, leave the door slightly ajar for additional discounting. “There were specific measures on the ID.3. For the time being, I would stick to the guidance in China that we want, from a volume point of view, to be slightly above prior year figure.”

But Antlitz does admit that hitting that year-end target would require “slight improvement” on ID.4 and ID.6 sales, as well as from other models.