Can VW’s guess on Brazil assist as gross sales in Germany, China fall? – DW – 10/31/2024 | EUROtoday

Volkswagen — lengthy a logo of German engineering and automotive prowess — is gazing an unsure future, confronted with a raft of challenges as the worldwide auto market transitions away from inner combustion engines to extra environmentally pleasant options, notably electrical mobility.

The firm on Wednesday reported its least worthwhile quarter in yearswith revenue down as a lot as 64% between July and September to simply €1.58 billion ($1.7 billion) from the €4.35 billion it earned a 12 months earlier.

Revenue was additionally marginally decrease, slipping 0.5% to €78.49 billion.

The figures got here as VW, Europe’s largest automaker, was locked in talks over potential mass layoffs and wage cuts.

The firm’s works council mentioned earlier this week that administration had knowledgeable worker representatives that it needs to shut a minimum of three crops in Germanyand minimize tens of hundreds of jobs.

Management on Wednesday offered a cost-savings proposal to employees, together with a ten% pay minimize and a revised bonus system. They mentioned it may be potential to keep away from manufacturing unit closures if there’s an settlement on the plan and different crucial steps to bolster the carmaker.

VW bosses say the general market surroundings is “challenging” and that there’s an “urgent need for significant cost reductions and efficiency gains.”

They cite an array of developments for the agency’s woes, starting from weakening demand for its autos in key markets and larger competitors from Chinese e-car producers to excessive labor and power prices in Germany.

In the primary 9 months of this 12 months, VW deliveries had been down about 1.6% in its residence market of Germany, which is battling financial weak point and rising structural challenges.

In China, which has been key for the corporate’s monetary energy in recent times, the drop was as a lot as 10.2%.

VW’s woes in China

China is the most important and most profitable marketplace for VW, accounting for a 3rd of the carmaker’s total gross sales and a good portion of its income.

But the German auto behemoth has up to now did not crack the fast-growing electrical automotive market within the Asian nation, leading to VW dropping floor quickly to Chinese rivals like BYD, NIO and XPeng Motors.

Dunne Insights, a world car trade consulting agency, estimated that the share of electrical autos in complete automotive gross sales in China will soar to nearly 50% this 12 months, up from simply 6% in 2020.

It identified that 18 of the 20 best-selling EVs this 12 months are Chinese manufacturers, with the remaining two fashions being Teslas.

Meanwhile, of the over 1.3 million VW items bought in China within the first half of the 12 months, solely a bit over 90,000 had been electrical.

Alicia Garcia-Herrero, a senior fellow on the European suppose tank Bruegel, mentioned it is going to be more and more tough for European carmakers like VW to compete within the Chinese market.

“China has moved up the ladder, it’s competing with European companies, perhaps the luxury sector is the least affected, but there is a lot of nationalism and pushing of local brands, so I think, frankly, it will be increasingly difficult,” she instructed DW.

“On top of that, growth is slowing down. So you know, there isn’t enough consumption on the part of Chinese households to really support the growth of European carmakers in China,” the skilled added.

What’s behind spectacular progress in Brazil?

While VW is confronting a extreme disaster in its key European and Asian markets, the carmaker remains to be recording progress in areas like North America and South America.

In Brazil, for example, the corporate mentioned earlier this month that its gross sales grew by 19.1%.

“In the Chinese market, electric cars are important. But in Brazil, they are not so important. Secondly, relatively older and more affordable models work well in Brazil,” which has helped VW up to now, Ferdinand Dudenhöffer, director of the Center for Automotive Research (CAR) within the German metropolis of Bochum, instructed DW.

Nevertheless, “Brazil is far too small to compensate for the weakness in Europe and China,” he mentioned, including that good efficiency within the South American nation is like “a drop in the ocean, and it won’t solve the problem” of declining VW gross sales in key markets.

The skilled additionally identified that VW will face elevated competitors from Chinese carmakers in Brazil over the subsequent 5 years: “The company will face greater competition even when it comes to combustion engines and vehicles that run on ethanol. The competition will become fierce, at the moment it is still relatively manageable but it will certainly become more intense.”

To strengthen its place within the Brazilian market, VW has mentioned this 12 months that it’ll pump extra money into the nation to develop new fashions, together with flex, hybrid and electrical autos.

Marcio de Lima Leite, president of Anfavea (Brazilian Association of Automotive Vehicle Manufacturers), instructed DW that the nation is “experiencing the biggest investment cycle in the history of its automotive sector, with 130 billion reais (€20.9 billion) being invested by vehicle manufacturers alone, not counting automotive parts suppliers.”

He famous that a number of components have contributed to the influx of investments, together with the tempo of restoration in Brazil’s auto market, financial and political stability in addition to favorable industrial insurance policies.

Leite additionally credited the Brazilian authorities’s MOVER coverage for reinforcing the sector. The program supplies tax incentives for automakers dedicated to growing low-carbon applied sciences, akin to hybrid and electrical autos, within the nation.

EV gross sales on the rise in Brazil

Even although electrical automobiles nonetheless account for lower than 5% of total automobile gross sales in Brazil, they’re recording fast progress.

And Chinese firms are already making inroads into the market.

According to the Brazilian Electric Vehicle Association (ABVE), gross sales of electrified automobiles jumped 146% within the first half of 2024 in comparison with the identical interval the earlier 12 monthsto 79,304 items, with VW’s Chinese rivals BYD and Great Wall Motor main the pack.

The Brazilian authorities has responded to rising EV imports by slapping 10% tariffs in the beginning of this 12 months, which was raised to 18% in July and is ready to high out at 35% by 2026.

Against this backdrop, to successfully compete with Chinese companies, “it’s important for VW not to stand still with the existing vehicle models,” mentioned Dudenhöffer.

“Because the Chinese, just like the Japanese, are coming up with more modern vehicles, so, VW must effectively manage the transition and modernize its vehicles, piece by piece, so that it’s not overtaken by the competition in the future.”

Edited by: Ashutosh Pandey