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Is Chinese dependence on German automakers too risky?

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Status: 07/28/2022 2:56 p.m.

China is the most important market for German automakers. VW, Mercedes and BMW sell one in three good vehicles there. However, sales collapsed in the first half. How risky is their addiction?

By Notker Blechner, tagesschau.de

So far, 2022 has been a tough year for most German automakers. Although they were able to make more money in the first six months, they had to accept a significant drop in sales. BMW sold 13% fewer vehicles, Mercedes sold 16% fewer cars. VW was the hardest hit. The Wolfsburg recorded a drop in sales of more than 22%.

The market is shrinking

This was mainly due to China. Porsche sold 16% fewer vehicles there in the first six months. And at Mercedes, sales in the Chinese market fell by around a quarter in the second quarter alone. Due to the corona shutdowns in many metropolises, including Shanghai, the Chinese were reluctant to buy new cars.

The situation should calm down in the second half. However, it is unlikely that the shortfall can be filled. The German automotive industry association VDA expects the Chinese auto market to contract by 2% this year.

Chinese rivals have caught up strongly

Alarm bells are ringing in the headquarters of VW, Audi, Porsche, Mercedes and BMW. Because China is now their most important sales market. VW sells 37% of its vehicles there. At Mercedes and BMW, it’s about one in three vehicles. In the luxury segment, the proportion is even higher: more than two-thirds of all Maybachs are sold in China.

For a long time, German automakers profited from the Chinese boom. In the 1990s, they still dominated the market in the Asian country. Together with other foreign manufacturers, they held a market share of up to 70%. Meanwhile, the Chinese rivals have caught up strongly. Over the past five years, the market share of German automakers has fallen from 25% to 17%, according to management consultancy Alix. “German supremacy in China is crumbling,” says automotive expert Ferdinand Dudenhöffer of the CAR Center Automotive Research.

No German electric car in the “Top Ten”

The expansion of electromobility in the People’s Republic has had a massive impact on German manufacturers. With more than 300 models, competition in China is fierce, explains Xing Zhou, director of Alix. As domestic automakers such as BYD (“Build your Dreams”) roll in the electric car market, Volkswagen & Co. struggles with their models. BYD delivered more electric cars in the first half than VW, BMW and Mercedes combined. In the first four months of the year, not a single German brand was among the top ten electric cars in China. VW only placed 15th.

By 2021, the Wolfsburg-based company had already missed its target of delivering 80,000 to 100,000 vehicles of the new ID electric model series. One wonders if the sales of 160,000 to 200,000 electric cars targeted for this year will be achieved. According to the half-yearly figures published today, VW seems to be on the right track: in June, the group doubled its deliveries of electric cars. With 17,600 “electric vehicles” from the ID family, more than ever were sold in a month in China.

According to a study by management consulting firm PwC, German manufacturers are catching up. With new models, they succeeded in doubling their market share for all-electric cars in China to four percent compared to the same period last year. The share of electric cars currently represents 15% of new registrations in the People’s Republic. Well, one in seven new cars in China is a true “electric vehicle”.

Berlin stops guarantees for investments

If German automakers don’t want to lose their most important sales market, they need to invest heavily in electric mobility – and in attractive new models tailored to Chinese buyers. But the question increasingly arises as to whether this is politically desirable. The federal government is currently urging the German economy to reduce its dependence on China. For the first time, the federal government recently tested a number of safeguards for German companies in China, including several investments in VW factories.

The Wolfsburg-based automaker is particularly criticized for its plant in Urumqi, in northwest China. According to human rights organisations, the Uyghurs are systematically oppressed and interned in camps in the region. The IG Metall union is asking for the site to be transferred.

Mercedes’ risky luxury strategy?

Companies in other sectors such as mechanical engineering are now reducing their activities in China. The VDMA advises its member companies to wait and see when investing in new factories in China and choose other parts of Asia instead.

So far, such plans have hardly been heard from German automakers. On the contrary: VW wants to expand its investments in China. And Mercedes constantly dresses its brand with the star of luxury like the S-Class and the Maybach. As a result, the Swabians risk becoming even more dependent on China, warns automotive expert Dudenhöffer. “You have to take that risk into account.”

Source www.tagesschau.de

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