Volkswagen-SAIC to close production site in China?

Due to weak demand for cars with combustion engines, Volkswagen and its partner SAIC could close a factory in China. In the US, the carmaker has had to pause the production of the ID.4.

Sales of ICE cars are dropping in the country, while electrified cars, the so-called new energy vehicles (NEVs) in China, dominate sales charts. Around 1.1 million NEVs were sold in China in August, with the NEV share reaching almost 45%.

How will the carmaker meet the growing demand for electric cars and make up for lost time? In 2018, VW could still post an operating profit of over €4.6 billion from its China joint ventures with FAW and SAIC on its balance sheet. In the first half of 2024, it was less than one billion, almost a third less than in the same period in 2023.

Reshuffle

As the Group sells fewer combustion engines in China, it might close the Nanjing plant. An insider told the news agency Reuters that the production of the Passat family could be moved to another factory. But there is no timetable yet, and the closure is not set in stone.

Bloomberg, which first reported on the move, writes that the plant could close as early as next year. Other people familiar with the matter told the news agency that the plant was not up for discussion.

According to a statement from VW China sent to Bloomberg, the carmaker is “transforming vehicle production and the components plants step by step.” The news agency notes that VW, reassessing its “Chinese footprint as it weighs plant closures at home, highlights the complex challenges the company must navigate to stay ahead of a perilous and uneven global transition away from fossil-fuel vehicles.”

Light at the end of the tunnel?

There could be light at the end of the tunnel for the German manufacturer. In the first half of 2024, Volkswagen Group saw a 45% increase in its electric car sales in China, demonstrating how important the market is, especially as demand is dropping in Europe.

It has repeatedly emphasized its “in China, for China” strategy. Future vehicles will be built and developed in China, using local technologies to meet customer requirements, for example, in the partnership with Xpeng. One of the main goals is to achieve cost parity with local BEV competitors for entry-level compact models by 2026.

In July, VW and SAIC signed a series of technical cooperation agreements for new products as part of their Chinese joint venture. These include the development of two all-electric models and three plug-in hybrid models in China and Germany, which will launch in 2026. Audi and SAIC will allegedly present their first jointly developed model in November.

Recall in the US

VW is also encountering a problem at a Volkswagen Group plant in the US. It is temporarily suspending production of the ID.4 electric car model in Chattanooga (Tennessee) and is placing around 200 employees on leave from 23 September.

This comes after a major recall and sales stop for the ID.4 due to potentially defective door handles, which can cause the doors to open while driving. According to the National Highway Traffic Safety Administration (NHTSA), water can penetrate the electronic door handles, short-circuit the circuit board, and open the doors while driving.

So far, there is no solution to the problem. “After extensive review, in response to the stop-sale of the ID.4, we will temporarily suspend production of the vehicle at the Volkswagen Chattanooga plant until a remedy is available,” a Volkswagen spokesperson told the new site, The Drive.

The spokesperson also emphasized: “This disruption in no way changes our commitment to the ID.4 and our growing BEV portfolio. The ID.4 remains one of America’s best-selling electric vehicles.”

The Drive also remarks that his news could act as ammunition for the United Auto Workers union (UAW), as VW Chattanooga employees recently voted to unionize, becoming the first automotive plant staff outside the Detroit Three to join the UAW’s ranks.

“It isn’t a good look for VW to furlough employees right after that milestone, especially since there isn’t a timeframe for when ID.4 production might start up again, and the employees can return to work,” the new site states. Contract negotiations between the union and the automaker began on Thursday.