Volkswagen jumps in Chinese vehicle production
Volkswagen AG, Europe’s largest automaker, plans to increase production 60 percent by 2018 in China, where the German company’s earnings last year surged by almost half.
A new plant in China approved by the supervisory board will build as many as 300,000 vehicles yearly and will start operating in early 2016, Chief Executive Officer Martin Winterkorn said today. Capacity in China will rise to 4 million vehicles a year by 2018 as VW adds seven auto factories in the country, he said in a speech at headquarters in Wolfsburg.
VW is counting on growth in China and the U.S., along with gains in the luxury-car segment with the Audi brand, to help offset declining demand in Europe amid a recession. Winterkorn said today that VW is “feeling the headwinds” of a competitive global market, particularly in its home region.
“There’s still enormous potential in China, but the market has slowed from double-digit growth to single digits, and that will remain so in the future,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “The risk of over- dependence and overcapacity naturally rises with such a plan. It’s up to VW to manage that.”
Volkswagen fell as much as 3.8 percent to 160.10 euros, the lowest intraday price since Nov. 23, and was trading down 3.5 percent at 11:57 a.m. in Frankfurt. The stock has declined 6.7 percent this year.
The German manufacturer has a target of overtaking Toyota Motor Corp. (7203) and General Motors Co. ( GM) to become the world’s biggest carmaker by 2018. Volkswagen has automaking ventures with China FAW Group Corp. and Shanghai-based SAIC Motor Corp. Deliveries by the Chinese partnerships last year totaled 2.61 million vehicles, accounting for 28 percent of the 9.35 million cars, sport-utility vehicles, vans and heavy trucks Volkswagen sold worldwide in 2012, according to its annual report.
VW, which also owns the Porsche luxury-auto brand as well as the Skoda and Seat volume marques, will build at least 10 plants globally, including seven in China, Winterkorn said. That would raise the number of its factories in the country, now the world’s biggest car market, to 19.
The company is looking at southern or southwestern China for a site, Jochem Heizmann, head of VW’s operations in the country, said today at a press conference.
GM is also a partner with SAIC, and the two are interested in buying ailing Chinese auto producers because they see the market as overdue for consolidation, people familiar with the companies’ thinking said last month. Detroit-based GM, already the top foreign carmaker in China, has a target of increasing sales there by about 75 percent to 5 million vehicles by 2015, according to the people.
FAW said in early March that the government should order foreign automakers to contribute more to develop local brands and limit those whose sole aim is to win more sales.
VW forecast today that profit, revenue and deliveries will probably rise in 2014, with demand growing in all regions. The company predicted in February that operating profit this year will match the 2012 figure, and said firstquarter profit will probably decline as Europe’s auto market continues to shrink. Unchanged earnings in 2013 would mark the first time since 2009 that annual operating profit hasn’t risen.
“Volkswagen is not completely immune to the intense competition and the impact this has on business,” the company said in a statement. Earnings before interest and taxes rose 2.1 percent to 11.5 billion euros ($14.9 billion) in 2012, and revenue gained 21 percent to 193 billion euros, VW said last month, when it also predicted sales and delivery growth in 2013. The earnings contribution from Chinese operations jumped 42 percent to 3.7 billion euros, the carmaker said today.