Olaf Scholz sparks a China crisis for Volkswagen

“Germany had what China needed and wanted when they started industrialisation in the ’80s,” says Hanns-Günther Hilpert, head of Asia research at the German Institute for International and Security Affairs.

“Germany was quite open with technology, much more than the United States or Japan – that was what the Chinese got. The Germans got from China big markets, and a huge economic boom for German industry.”

Now, Volkswagen’s foothold could be at risk. It comes as the automaker ploughs €35bn (£30bn) into its electrification strategy with key factories in China – the world’s largest automotive market and the country driving the electric race.

The parent company of Audi, Bentley and Lamborghini accounted for 19pc of China’s car sales last year. Its subsidiary, Volkswagen Group China, sold 3.8m vehicles in 2020, including 3.6m made domestically, with profits of €3.6bn. 

For the world’s second largest car maker, China boasts an attractive and fast-moving market where the government has previously cut taxes if demand slows, says Shanghai-based Min Chun of Daxue Consulting. 

In April the company announced its third electric vehicle (EV) factory in China with production set to begin in late 2023. The plant in eastern Anhui province was pledged as a “cornerstone of Volkswagen’s global e-mobility push”.

According to Min, “this battery plant will become an important backbone to their global battery strategy and EV market”.

Last year Volkswagen expanded its shareholding in its joint venture with China’s State-owned JAC Motors and bought more of Chinese battery maker Gotion. 

Deliveries of its battery-powered electric vehicles in China, meanwhile, more than tripled in the first nine months of this year, just two months after saying it needed to change its EV strategy. It aims to deliver up to 1.5m new energy vehicles a year, by 2025.

But, according to Min, the company’s dominance is being challenged by fast-growing Chinese electric vehicle makers such as Geely.

“VW has fallen behind in this sector and China is no longer dependent on the German manufacturers that are known to have the cutting-edge for fuel vehicles.”

Still, the firm remains reliant on China for about 40pc of its overall sales and profits. The group made more than €9.7bn in profit in 2020, and delivered more than 9m cars.

A spokesman said: “The Volkswagen Group takes its responsibility as a company in the field of human rights around the world very seriously – also in China.

“This concerns such aspects as the protection of minorities, the entitlement to employee representation or permanent social and labour standards. We also expect our local Chinese business partners to especially observe these principles.”

As Germany’s new coalition gets to work, the prospect of it ramping up pressure against Beijing could be all the more likely with the Greens – a party known for taking a tougher line on China than the outgoing Christian Democratic Union. Critics blamed Merkel for continuing to allow investment to flood into Europe’s largest economy from Beijing, without sufficiently fighting against accusations of more than one million Uyghurs being detained in re-education camps.

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