VW eyes cost parity with local OEMs in Chinese market

Chinese firms have long enjoyed lower operating costs compared to Western rivals

VW eyes cost parity with local OEMs in Chinese market
VW last week released a concept for its new ID.UX Chinese sub-brand

German OEM VW Group has said that it will achieve cost parity with Chinese OEMs in the compact BEV segment, as the firm aims for 15pc market share in the most competitive EV market in the world.

Under its 'In China For China' strategy, VW is looking for a strong BEV base in China to boost European EV sales, which CFO Arno Antlitz told analysts on the firm's Q1 earnings call he expects to be "not linear."

"Our target is to increase the proportionate operating result to around €3bn by 2030, including the fully consolidated joint venture in Anhui and to achieve a 15pc market share by 2030 in China.

"We expect the market to grow to 28mn vehicles by then. NEV penetration in our vehicle sales should reach 50pc in 2030," he continues.

Antlitz says that VW aims to "achieve cost parity with local BEV leaders in the price-sensitive compact and minor segment by 2026". This will be no mean feat for VW without the aid of government subsidies from which many Chinese OEMs benefit.

To reach this point, VW says it will need to reduce material costs by 40pc, which will include savings of one third on batteries as the firm shifts towards LFP chemistry. However, as a result, the OEM's capex is currently at "elevated levels" due to these investments in battery software, Antlitz says, and R&D expenses increased by 20pc to €6bn in Q1.

The firm's pricing will likely come under pressure, as even Chinese BEV leader BYD reported stagnant Q1 revenues as it was forced to cut prices to sustain its appeal in a densely packed market.

But while BYD and other Chinese OEMs look abroad for potential relief from the cut-throat competition in the country's mass-market space , VW is in contrast looking to its China business to do a lot of heavy lifting, amid what it calls "muted" demand for EVs in Europe. Q1 European BEV deliveries declined 24pc, and Antlitz says that "substantial growth in China could not fully compensate for this".

Corporate structure

VW Group has been looking to unlock savings with changes to its corporate structure in China, not just on the production line. A joint venture (JV) with Chinese OEM Xpeng will see the two automakers establish a joint sourcing platform for platform parts. VW has also launched a ringfenced Chinese subsidiary in the city of Hefei called Volkswagen China Technology Company (VCTC).

"Thanks to the new local independent structure with VCTC in Hefei, we will shorten time to market for new products by 30pc," Antlitz says.
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As of Q1, however, as the automaker undergoes a significant ramp-up of EV production in its China-based JVs, this has had "margin-dilutive effects" on the firm's Chinese division.

"The proportionate operating result of our China JVs amounted to €400mn after three months in 2024, down [by] 31pc on the prior year number and in line with our expectations of €1.5-2bn proportionate operating results this year," Antlitz says.

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