In the first quarter of this year, Volkswagen's Chinese passenger car sales were surpassed by BYD, losing its leadership position for the first time in 40 years. The "culprit" was electric vehicles. However, this is just the tip of the iceberg, and Volkswagen’s actual situation in the electric vehicle market is much more sinister.


Volkswagen may face its biggest crisis in eight years

In 2022, Volkswagen Group will change its CEO. New head Oliver Blume received some bad news when he took office.

At that time, Volkswagen sent a senior executive to China to assess the competitive landscape. But the executive's assessment was discouraging. At VW headquarters in Wolfsburg, he told new boss Obermaugh that VW was losing the race for electric cars in China, its most important market, and had no hope of catching up on its own.

The biggest crisis in eight years

During the epidemic, Volkswagen has fallen behind in the Chinese market. BYD, NIO and other local Chinese brands have doubled the number of hybrid and pure electric models since the pandemic ended, and most are cheaper and better than Volkswagen's models.


Volkswagen CEO Obermou faces transformation challenges

At the same time, these new competitors are turning their attention to Europe, Volkswagen's home base. Volkswagen and other German manufacturers are already under pressure from high energy prices and are feeling even more pressured by Chinese rivals.

Half a world away, U.S. electric car giant Tesla is also continuing to expand and claim a leadership position in automotive innovation, joining Mercedes-Benz and BMW in undermining Volkswagen's cash cow Audi brand. Audi has a well-known brand slogan called "Breakthrough Technology Enlightens the Future." However, for consumers who want to pursue cutting-edge automotive technology, their choice is Tesla.

This competitive pressure has left the public breathless, spreading from the company's top management to ordinary employees, and continuing from the US market to the Chinese market. It could turn into the biggest crisis facing Volkswagen since the 2015 Dieselgate scandal. But the problems may be more difficult to resolve and reflect the risks facing Germany, Europe's largest economy.

"The question facing the German automotive industry is whether and how we can become a global leader in the future. For our country, the automotive industry accounts for a large share of value creation, which is not only an economic issue, but also a security issue," German Foreign Minister Berberk said at the Munich Motor Show last week.

A generation behind Chinese car companies

The second quarter global pure electric vehicle sales report released by market research company Counterpoint Research shows that Tesla occupies the first place with a market share of 20%; followed by BYD with a market share of 15%; Volkswagen only ranks third with a market share of only 7%. In the same period last year, Volkswagen's share was still 8%, and now it has fallen further.

According to data from the new energy research company CleanTechnica, in July this year, BYD accounted for four of the five best-selling electric vehicles in China, and only the Tesla Model Y occupied the third place.


Volkswagen’s global electric vehicle share is less than half of BYD’s

Not only Volkswagen, but other European car manufacturers are also feeling the pressure from Chinese car companies. Renault CEO Lucade Meo said at the Munich Auto Show that China is a generation ahead in electric vehicle production.

"We have to close the cost gap with some Chinese automakers that started making electric cars a generation earlier than us," De Meo said. He added that when manufacturing costs fall, prices will fall as well.

Hildegard Mueller, chairman of the German Automobile Industry Association, said bluntly, "We (Germany) are losing competitiveness." He pointed out that the Munich Motor Show showed that "strong pressure from international competition" requires Germany to increase investment in electrification.


BYD’s Seal electric car on display

China's threat to Germany's dominance in the automotive industry was vividly demonstrated at the Munich Motor Show. BMW executives are praising the Cyberster electric sports car from SAIC Motor's MG brand, which will go on sale next year for about 57,000 euros, roughly the same as BMW's gasoline-powered Z4. In BYD's booth, Volkswagen's chief labor representative Daniela Cavallo watched BYD's press conference attentively.

"Stealing Learning" from Chinese Companies

As Ogbomu completes a year in office, his strategy to address the popular crisis is taking shape. His response involves a host of new partners, a third attempt to build a competitive electric vehicle platform and a shakeup of management at VW's in-house software development company Cariad. Previously, Cariad's software development failed to keep pace with Tesla and other competitors.

Obermu said at the Munich Auto Show: "Every company must start from itself, innovate, develop, and finally perform. It depends on us."

Volkswagen's most radical move is to spend US$700 million to acquire nearly 5% of Xpeng Motors' shares. Xpeng Motors is still losing money and ranks outside the top 10 in terms of electric vehicle sales in China. However, Volkswagen is willing to invest in Xpeng Motors. In order to gain access to Xpeng's electric technology platform and help it quickly launch mainstream electric vehicles, Volkswagen has to bear this price. The outside world generally regards Volkswagen's move as a last-ditch effort to reverse the decline of electric vehicles.


Volkswagen and Xpeng Motors reach cooperation

Volkswagen already has three joint ventures in China. Before taking a stake in Xpeng, it also reached new cooperation agreements with a Chinese battery manufacturer, an autonomous driving technology provider and an infotainment developer.

third threat

"Volkswagen is like a large oil tanker that takes time to turn. Once the tanker starts to turn, you can't stop it." Mathias Miedreich, CEO of Umicore, a Belgian battery materials developer, said. Umicore supplies battery materials to the public.

While VW's transition to electric vehicles is complex and beset by power struggles, it has deep pockets to fight back. As of the end of June this year, the Volkswagen division's net liquidity was 33.6 billion euros. A year ago, Volkswagen took Porsche public, selling only a minority stake. VW has plenty of other options to raise more money if needed.

German Chancellor Scholz said in a speech at the Munich Auto Show: "We should be stimulated by competition, not intimidated. In the 1980s, some people said that Japanese cars would occupy all other markets. 20 years later, the threat became Korean cars. Now there is a threat from Chinese electric cars in the market."