Volkswagen banks on weighty investment in China
BEIJING – Volkswagen aims to keep its Chinese market share roughly stable until the end of the decade, the head of its China business said, betting heavy investment will support sales despite a raging price war with local electric vehicle rivals.
The targets for 2030, including Volkswagen’s ambition to take a share of around 15% of the Chinese car market by then compared to 14.5% last year, underscores the challenges Europe’s top carmaker faces in the world’s biggest auto market.
“Prices are going faster down than the cost improvements,” Volkswagen management board member and head of its China business Ralf Brandstaetter said on Wednesday.
“We expect in the next years, the next two years especially, that this price war will continue,” he told analysts during a capital markets event around its China business, adding that would put pressure on profits.
Volkswagen ceded its title of bestselling car brand in China to Chinese EV giant BYD in late 2022, and the group’s market share in China fell to 14.5% last year from 19.3% in 2020 as combustion-engine sales declined.
Brandstaetter cited investments in a new Chinese research hub and partnerships with EV makers and suppliers in China to develop more affordable EVs, more quickly. The 15% market share target would correspond to selling around 4 million cars in China annually by 2030, up from 3.07 million last year, Volkswagen said.
Brandstaetter said Volkswagen remained in talks with SAIC about their jointly owned plant in Xinjiang, a region where rights groups have documented abuses. He added Volkswagen was examining different options for the business.
Volkswagen CEO Oliver Blume said this month the group “cannot keep up at the top of the table at the moment” in China’s fast-growing EV market, adding a market share of more than 10% would be “very respectable” given fierce competition.
“The implicit admission of previous non-performance and new accountability, in our view, are huge steps in the right direction strategically, and miles away from VW’s historical culture,” Citi wrote.
“This builds on our view that VW is changing. At least in China, it has had no choice.”
China has undergone a big shift from the combustion-engine age when foreign-made cars, especially those from Germany and Japan, were seen as the pinnacle of global engineering, to the electric age that has seen their Chinese counterparts move much faster on developing EV technology.
Among the incumbent foreign automakers, Volkswagen has arguably mounted the biggest fight to stay competitive against the likes of BYD and U.S. automaker Tesla, including participating in a bruising price war.
Volkswagen’s ID.3 became one of the bestselling EVs in China after the automaker slashed the price by just over $5,100.
Ban or no ban, TikTok’s partners in the music and advertising world plan to stick with the massively popular short-form video platform until the bitter end, seven industry leaders told Reuters.
The U.S. Senate passed a bill late Tuesday that gives Chinese tech firm ByteDance up to a year to divest TikTok, or the app will be banned altogether. President Joe Biden has signed the bill, capping a four-year battle over concerns the Chinese government could influence content or access user data.
TikTok has rivaled larger companies such as Meta Platforms for user attention and ad budgets, and its cultural power is reflected in its ability to catapult emerging artists into viral hits, changing how young people discover music.
As long as TikTok’s users remain engaged with the app, “advertisers will ride it all the way until the door slams shut,” said Craig Atkinson, CEO of digital marketing agency Code3.
Adamm Miguest, CEO and founder of Rapid Launch Media, which creates marketing campaigns designed to make songs go viral, said he will advise clients to stay on TikTok as long as they can.
Even Universal Music, whose artists’ songs disappeared from TikTok in March as licensing talks stalled, has resumed negotiations in recent weeks, according to two people close to the discussions. The talks reflect the realization that, whatever the outcome of the legislative process, TikTok is not going away tomorrow, one of the sources said. Universal declined to comment.
The app’s importance is also underscored by how superstar Taylor Swift, a Universal artist, defied her label by putting her music back on TikTok just weeks later.
“I think we have to look and ask, why did Taylor Swift do that? Even she recognizes the power that TikTok yields,” said Johnny Cloherty, CEO of Songfluencer, a creative marketing firm that has worked with artists like Dolly Parton and Miranda Lambert.
Musicians aim to get songs circulating on TikTok or other platforms such as Instagram Reels and then have users listen to the music on streaming services. TikTok posts are far more likely to lead to streams, said Miguest, who has worked with musicians including Muni Long and Sueco.
“From what I’ve seen, you have to get 10 to 20 times the amount of posts on Reels for it to even come close to translating to what you might get on TikTok,” he said.
TikTok also beats Google’s YouTube as the most common music discovery source for teens in the U.S., said Tatiana Cirisano, a senior music industry analyst for Midia Research.
TikTok has long said it has not and never would share U.S. user data with the Chinese government. It is expected to challenge the bill.
“This is the beginning, not the end of this long process,” TikTok told staff on Saturday, Reuters previously reported.
“This unconstitutional law is a TikTok ban, and we will challenge it in court,” a spokesperson said on Wednesday. “We believe the facts and the law are clearly on our side, and we will ultimately prevail.”
The company did not respond to a request for further comment.
Other tech platforms are waiting in the wings for TikTok’s users and ad revenue.
YouTube has been particularly aggressive in going after TikTok marketing budgets, asking ad agencies to test one of its advertising products to see how it performs against TikTok specifically, according to one advertising agency director, who declined to be named to discuss conversations with the platforms.
Biden’s campaign to stay on platform
President Joe Biden’s reelection campaign plans to continue using TikTok, a campaign official said on Wednesday, shortly after the president signed into law a bill that would ban the app if its Chinese owner fails to divest it.
The campaign will use “enhanced security measures” while using the app, a Biden campaign official said. Biden’s campaign staff are not employed by the government and do not deal with national security issues, so they are allowed to have the app on their phones, campaign officials had previously said.
The Biden campaign account on TikTok, @bidenhq, has posted close to 120 videos and has more than 306,000 followers, and routinely posts videos of Biden there.
Recent surveys have shown that Gen Z is increasingly using TikTok to search for information and businesses rather than Google. Google did not respond to a request for comment.
Spotify CEO Daniel Ek told investors on Tuesday that short-form video content is “a big focus of ours,” which would make its way to the service’s music streaming product in 2024.
Even with their commitment to the platform, advertisers are beginning to shift from their theoretical contingency plans, which have long been in place, to actively testing Plan Bs, Atkinson said.
“If we imagine a continuum of ‘maybe this will happen someday,’ to the idea that TikTok will be turned off, we’ve moved one step over,” he said.
Both advertisers and music artists have taken steps to test and diversify their strategies across other platforms. “But none of them have quite garnered the attention that TikTok did,” said Gabriel Lister, managing partner of record label Independent Co.