Volkswagen sells first plant, but it is in China

The Volkswagen Group has decided to sell its plant in Urumqi, in the Chinese region of Xinjiang, an area at the centre of international controversy related to the repression of the local Turkish-speaking and Muslim population (the Uighurs) and, above all, to alleged human rights abuses (forced labour). The company, in cooperation with its 40-year old Chinese partner Saic, will hand over the plant to state-owned Shanghai Motor Vehicle Inspection Certification (Smvic).

The sale, the value of which has not yet been made public, represents a turning point for the Wolfsburg company, which has been under pressure from investors and human rights groups to leave the region for years. Xinjiang has been at the centre of allegations of human rights violations, including the alleged use of forced labour in detention camps, allegations that Beijing (and Volkswagen, for its part) has always denied. The first production site divested by VW while difficult trade union negotiations are underway over a major cost-cutting plan is in China, therefore, not in Germany. But the coming weeks will tell us more. Which German factories will suffer a similar fate?

Shareholder Deka Investment, one of the many investors (it has just over 5 per cent of the shares) that had lobbied the carmaker hardest to pull out of Xinjiang, said the deal will have minimal financial impact. The Xinjiang plant, which opened in 2013 and which previously assembled Volkswagen's iconic Santana (famous because Chinese taxis were Santanas for more than 20 years, then supplanted since 2009 by the Byd e6, known as the Chinese electric Multipla), had lost importance in recent years. Only 200 employees were left to conduct final quality checks and deliver the vehicles to dealers in the region. The plant had the capacity to produce 50,000 units per year, but had not been producing since 2019. Volkswagen denied rumours that it would keep the plant open as a condition set by Beijing to continue producing in China. It said on Wednesday that the decision to sell the plant was made for economic reasons. The group has 39 production plants in China. Last April it announced a 2.5 billion euro investment to expand its production and innovation centre in Hefei, Anhui province. The aim is to be more competitive in the crucial field of electric vehicles.

Wolfsburg's move comes at a particularly critical time. Europe's leading carmaker is facing momentous challenges in China, including a significant loss of market share (from 18% in 2018 to 14.2% in 2023) and increasingly fierce competition, particularly with local manufacturers such as BYD. It is precisely the Shenzhen-based electric car manufacturer that has now overtaken Volkswagen as the best-selling brand in China, underscoring the European giant's difficulties in maintaining its decades-long leadership based on traditional powertrains, which since July have accounted for less than half of new registrations in the world's largest market.

To relaunch its brand in China, Volkswagen is collaborating with local partners such as Xpeng, aiming to develop new electric or hybrid models by 2030. In addition, the partnership with Saic has been extended to 2030 to 2040, with the aim of launching 18 new models by the end of the decade, including two extended-range vehicles planned for 2026.