Volkswagen, fewer plants also in China against falling sales

The Volkswagen Group and its Chinese incumbent partner SAIC are reportedly planning to close a plant in Nanjing, China. It may not be the only one. The reason is the slump in demand for cars with internal combustion engines. The plant, which produces VW Passat and Skoda models, has an annual capacity of up to 360,000 vehicles. The closure of one or more plants is also being considered by the Wolfsburg giant in Germany, where a radical cost review is underway.

At its Shanghai site, SAIC Volkswagen Automobile had already stopped production at another plant two years ago. The site had been in operation since the mid-1980s. A second plant has reduced production and may also be closed or restructured. The two partners are also reviewing Skoda's mass-market brand strategy after a sharp drop in sales, as confirmed by the company itself. A plant in Ningbo, Zhejiang province, which produces several Skoda models, has been idle for months and could be a next candidate for closure. A final decision has yet to be made, anonymous sources told the international news agency Bloomberg.

"All SAIC Volkswagen plants operate normally according to market needs and our forecasts," Volkswagen China said in an email response to Bloomberg News.

The downsizing of the German manufacturer in China, the world's largest car market with 30 million vehicles sold by 2023 (according to China Association of Automobile Manufacturers, CAAM), is mainly caused by the rapid transition to electric vehicles, which has exposed the Wolfsburg-based manufacturer to excess production capacity for conventional vehicles.

While demand for electric vehicles in Europe has come to a standstill and is likely to be zero by 2024 (just over 3 million units according to RHO Motion, a British research centre focused on the energy transition in the automotive sector), electrification in China is proceeding apace. A run-up that has lasted a decade, but has seen a marked acceleration since 2019. Local manufacturers such as the Shenzhen-based giant BYD have jumped to the head of sales thanks to innovative and affordable models, while cars with 'thermal' engines are desired less and less by consumers in the Dragon.