On July 7, 2014, Volkswagen announced that it will be opening two facilities in China to increase production of VW’s around the world. In collaboration with the FAW Group Corp., two plants will be built—one in Qingdao and one in Tianjin. In total, VW and FAW are estimating a $2.72 billion budget to bring the plants to completion. VW President in China Jochem Heizmann says, “With these investments, Volkswagen is clearly expressing its commitment to the Chinese market.”
Already, the country is the biggest market for VW vehicles, with over 33 percent of all cars on the road in 2014 being Volkswagens. Between January and May of this year, there was an 18 percent spike in VW cars sold in China, bringing the record-breaking total to 1.5 million sold in the first half of the year. VW has also announced that $18.2 billion euros will be injected into the economy between today and 2018 to further optimize production capacity in the country with a goal of having four million new VW’s on Chinese roads.
Letting the Ink Dry
The deal was signed in Beijing with Angela Merkel, the German Chancellor, meeting with Chinese premier Li Keqiang to seal the agreement. There’s already one joint VW car manufacturing plant in China, shared between VW and SAIC Motor Corp. (A Shanghai-based company), but these additional plants are said to have what it takes to secure VW’s dominance in the Chinese market.
According to Martin Winterkorn, CEO of VW, “China has become our largest and most important market. To satisfy the demands of our customers in the country, we are engaging in a further substantial expansion of our capacities in China together with our Chinese partner FAW Volkswagen.” Back in April, Winterkorn went on record to say that he expects a 10 percent increase in Chinese deliveries at the end of this year compared to 2013.
Eyeing the Competition
What wasn’t explicitly stated was that this is a big move in the right direction to take down Toyota Motor Corp. as the biggest automaker in the world. A number of automakers, like VW, are building Chinese factories in order to deliver more easily to the second biggest economy in the world. There will be over one billion Chinese drivers in 10 to 15 years, and everyone wants a slice of that demographic.
With a diverse inventory of models—and already having secured the love of Chinese residents—Volkswagen already has an edge over the competition when it comes to being the golden automaker of the country.