Despite being the world’s largest vehicle market, China has been notoriously difficult for Western carmakers to penetrate. The electric vehicle (“EV”) revolution has presented an attractive opportunity, allowing carmakers to enter the Chinese market with relatively good results. Volkswagen AG, for instance, partnered with Shanghai, China-based SAIC Motor and FAW Group in Changchun, Jilin, China to build the ID electric vehicle series. The German automaker is looking to double sales in China this year after selling 70,625 of its ID electric cars in 2021.
This was nearly 10,000 EVs short of Volkswagen’s goal to sell 80,000 to 100,000 electric vehicles in the largest vehicle market in the world. Volkswagen failed to meet this goal partly because of regional coronavirus outbreaks, which slowed down production, and the global chip shortage. Except for Tesla, which rewrote its software to weather the chip shortage, most automakers were forced to slash production due to the ongoing worldwide chip shortage.
So while Volkswagen would still like to double its original plan of selling 80,000–100,000 electric cars in the Chinese market, the automaker’s China chief Stephan Wollenstein said, the plan isn’t set in concrete because of the semiconductor shortage. Still, the German carmaker is quite optimistic about the prospect of doubling electric vehicle sales in China this year. Including its other brands Lamborghini, Audi and Porsche, the Volkswagen Group sold around 3.3 million cars in the Asian country last year. This is a 14% drop in sales from the previous year, Wollenstein says.
Depending on how the semiconductor shortage plays out, the Volkswagen Group would like to increase this number by around 500,000 more units, or 15%. From early last year, the semiconductor shortage has severely affected the vehicle industry, forcing most companies to significantly reduce production while the supply chain sorts itself out. Since everything from entertainment systems and power steering to the brake sensors relies on these chips, vehicles literally cannot function on the road without them. The drop in global vehicle supply has consequently led to increased prices for both new and used cars as the demand remains unchanged.
To conquer the Chinese market, Volkswagen will have to compete with local carmakers, a feat even Tesla has struggled with. As it stands, the entire Chinese vehicle market is dominated by local players, including BYD and SAIC Motors. With the dominance of local brands and the chip shortage looming on the horizon, Volkswagen has its work cut out.
The Chinese EV market isn’t the only arena where companies are jostling for pole position. North America and other regions of the world are seeing companies such as Rivian Automotive Inc. (NASDAQ: RIVN) positioning themselves to get a head start over other players in the sector.
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