Volkswagen’s Tesla race hits wrong gear in China

By
3 minute read
Register now for FREE unlimited access to Reuters.com

LONDON, June 23 (Reuters Breakingviews) - Volkswagen’s (VOWG_p.DE), (VOWG.DE) Tesla (TSLA.O) race is hitting the wrong gear in China. The 130 billion euro German carmaker has been hit by low Chinese sales of its flagship electric car. That bodes ill for boss Herbert Diess’s aim of challenging Elon Musk’s dominance.

Following ebullient sales projections and commentary on Twitter, Diess may soon add missed targets to his list of what he’s copying from Tesla’s overpromiser-in-chief.

In May VW sold just 1,213 ID.4 electric SUV models, two months after its launch, according to Reuters. That was only a slight increase on April. It means the Wolfsburg-based carmaker, which operates in China through separate joint ventures with locals SAIC Motor and FAW, is far behind an implied annual sales target of roughly 100,000 such vehicles.

Register now for FREE unlimited access to Reuters.com

That’s worrying for Diess – and not just because Tesla sold a comparatively healthy 6,612 of its rival Model Y in China in the first two months after its launch. VW shares have climbed an impressive 44% so far this year, easily outperforming a 27% gain for the benchmark STOXX Europe 600 Automobiles index. It came as the company staked its reputation on beating Musk for electric supremacy, buttressed by Diess’s planned 35 billion euro investment in electrification.

The ID series forms the backbone of a push to sell up to 3 million all-battery rides by 2025, a more than 10-fold increase on last year’s total. China, VW’s largest single geography, is expected to account for roughly half of those sales. And the fact it could boast a peer-beating 19.3% share of the overall Chinese market means it should have an edge over comparative arrivistes like Tesla.

True, the figures represent only two months of sales, and Chinese competition – with a host of domestic zero-carbon contenders in addition to foreign players – is much more cut-throat than Europe, where the ID.4 has proved popular. VW is confident that sales should shoot up later this year as production increases and new electric models are released.

A 1.5% share decline on Wednesday implies VW shareholders are not yet anxious. A longer Chinese slowdown could short-circuit that confidence – as well as Diess’s electric tussle with Tesla.

Follow @CGAThompson on Twitter

CONTEXT NEWS

- Volkswagen’s flagship electric car models – known as the ID series – are not selling as well as hoped in China, according to a Reuters report on June 22 citing anonymous sources.

- Sales in May of VW’s two ID.4 electric SUV models, launched only two months earlier, came to a mere 1,213 combined. That was about 200 fewer than in April, according to auto consultancy LMC.

- The sales fall far short of both VW’s initial hopes and what some rival automakers have achieved in the world's largest car market.

- Volkswagen's venture with state-owned SAIC Motor, which makes the slightly bigger ID.4 X model, had been targeting sales of 50,000-60,000 vehicles this year, according to comments by Yang Siyao, a company marketing executive, in Chinese media in March.

- A separate venture between VW and FAW, which makes the ID.4 CROZZ, had similar targets.

- Furthermore, both ventures' electric-vehicle plants are running below 10% of production capacity, Reuters reported. The sources blamed the poor sales on a lack of smart tech features, fierce competition, a late launch compared to rival Tesla and Chinese EV makers, as well as hiccups with its new electric-vehicle sales network.

- Volkswagen shares were down by 0.4% to 221.50 euros by 10:45 a.m. (0945 GMT) on June 23.

Register now for FREE unlimited access to Reuters.com
Editing by Antony Currie and Katrina Hamlin

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.