Economic Advantages of Volkswagen Production in China
Volkswagen continues to expand its operations in China, planning to export more vehicles manufactured there to foreign markets, excluding Europe. This strategy is based on significant cost savings that make car development and production in China much cheaper compared to other regions.
Factors of Chinese Production Efficiency
Volkswagen has invested billions of dollars in the local market, and thanks to lower labor costs, shortened development timelines, better battery procurement conditions, and optimized supply chains, it manages to reduce overall costs by 50%.
A key role in this is played by the new research and development center in Hefei, which contributes to the creation of the company’s new generation of electric vehicles. By integrating various teams and disciplines, the automaker can now develop new electric models 30% faster than before, shortening the traditional cycle from 50 months.
Thomas Ulbrich, Technical Director of Volkswagen Group China, noted that this facility provides a “completely new level of integration,” where software, hardware, and vehicle validation processes function in parallel.
He added: “We can now conduct software, hardware, and full vehicle validation processes in parallel, shorten decision-making cycles, and refine innovations much faster.”
Export Plans and Limitations
Volkswagen has already begun supplying sedans with internal combustion engines manufactured in China to the Middle East, and the company is exploring opportunities for similar exports to countries in Southeast and Central Asia. However, plans to supply these cars to Europe are absent.
This is due to two main reasons: first, the electronic architecture of cars developed in China does not meet European standards; second, customs duties on Chinese-made electric vehicles would likely negate any cost advantages, undermining the very strategy that makes this approach viable in other regions.
Volkswagen’s Future Initiatives in China
Volkswagen plans to launch 30 new electric vehicle models in China over the next five years. These models will be important for recovering the automaker’s market share in China.
According to the Financial Times, Volkswagen is not among the top ten most popular battery electric vehicle or hybrid brands in China, although it maintains a 20% share of sales for models with internal combustion engines.
The global automotive industry continues to adapt to global economic realities, where China is becoming an increasingly important hub not only for sales but also for electric vehicle innovation. Approaches such as integrated development and local cost optimization may serve as a model for other automakers seeking to compete in a changing market. However, geopolitical factors, such as customs policy, remain crucial in determining global export strategies.