"Price War": Volkswagen leads a tough battle in China

When Volkswagen's head of China talks about the situation in the world's largest car market, it becomes clear that his company has already experienced easier times in the Middle Kingdom. "Prices are falling and falling, competition is getting tougher," describes Ralf Brandstätter shortly before the auto show begins in Beijing this Thursday (April 25). Although the business with conventional cars with combustion engines is still "highly profitable" for VW. Thanks to the flowing profits, the company has enough funds to invest heavily and make structural changes.

This seems to be necessary. Because the market in China is rapidly developing towards smart electric cars. In the first quarter, Volkswagen Group delivered 693,600 vehicles to customers in China, according to its own figures. Of these, 41,000 were pure electric vehicles. Although this is an improvement for VW, it is still relatively little compared to the overall electric car market. It is already expected that 40 percent of all vehicles sold in China this year will be electric cars, recently reported the state newspaper "China Daily". Next year, every second new car sold in China is likely to be an electric car.

Never competitive with combustion engines, but already with electric cars

Chinese manufacturers could never keep up with the delicate technology of the Germans in combustion engines. But with electric cars, the cards have been reshuffled. It is no longer VW that sells the most vehicles, but the Chinese manufacturer BYD, which entered the electric segment early. With the help of state subsidies, but at least as much inventive spirit, the Chinese have managed to build cars that meet the tastes of buyers. To the established manufacturers are added dozens of new Chinese providers that are flooding the market with technically sophisticated vehicles. On the streets of Chinese metropolises, there are now so many different electric car brands that it is sometimes hard to keep track.

And then of course there is Tesla, which can also offer its vehicles locally at low prices thanks to a massive factory in Shanghai. An entire armada of manufacturers wants to assert themselves in the market. Cui Dongshu, Secretary General of the Chinese Automobile Association CPCA, speaks of a real "price war".

All this is happening against the backdrop of a weakening Chinese economy. People are thinking twice about whether it is the right time to buy a new car. Manufacturers have no choice but to offer high discounts. This makes it hardly possible to run a profitable business. The auto show in Beijing, now the most important industry gathering in the world for many manufacturers, will once again present numerous models. Volkswagen alone plans to showcase 44 vehicles at the show with its group brands like Audi and Porsche, including six world premieres. Group CEO Oliver Blume promises to demonstrate the "innovative strength" of the German automaker.

Despite the debate about the German economy's excessive dependence on China, auto experts see hardly any alternative for manufacturers but to stay in the game in the Middle Kingdom.

"China must remain an important market for German automakers. You can’t simply redistribute the sales volumes in this huge market to somewhere like the USA," says Frank Schwope, who teaches automotive economics at the University of Applied Sciences for Business and Media in Cologne and Hanover. There is still a lot of potential for growth in China. This is especially true because significantly fewer people own a car there compared to America or Europe, measured by the total population.