Electric-car market is “overheating” says top Volkswagen executive

The CEO of the Volkswagen Group’s Chinese operations, Ralf Brandstätter, has warned the high cost of electric cars combined with sharp discounting “will ultimately harm the interests of consumers”.

In a speech at the 2023 China Automobile Forum – hosted by the China Association of Automobile Manufacturers in Shanghai on Thursday local time – Mr Brandstätter said the electric vehicle market cannot continue on its current rapid roll-out path.

“There are more than 120 car makers within the [electric vehicle] market, and about 150 new models will be launched in 2023,” Mr Brandstätter told the industry gathering.

“Intense market competition and high battery prices make them face severe economic pressure. Short-term sales success requires extremely high capital investment.”

Addressing the financial squeeze facing many electric vehicle start-ups, Mr Brandstätter said many brands that entered the electric vehicle market in recent years are already exiting or are about to exit the market – or are in urgent need of new investment.

“We are facing a situation where the market is overheating. Consolidation of the playing field is in full swing,” said Mr Brandstätter.

The former head of the Volkswagen brand was particularly critical of the discounting of electric vehicles in China.

“The fierce competition has led to deep price discounts,” said Mr Brandstätter. “This will ultimately harm the interests of consumers. They will no longer be able to get services from retired brands, or they will see a significant price cut on the models they buy.”

Mr Brandstätter’s comments were viewed as a veiled criticism of rival Tesla, which has led the trend towards sharp discounting whenever customer demand tapers.

The 54-year-old German executive said the Volkswagen Group will not pursue sales growth within the Chinese electric-vehicle market at all costs.

“For us, the profitability of the business is the most important” said Mr Brandstätter. “We will not engage in unhealthy market competition in order to achieve short-term delivery growth.”

In a later post on social media platform LinkedIn, Mr Brandstätter wrote: “A lot of capital (financial investment) is being destroyed (by large discounts) that is then not available for the development of cutting-edge technologies”.

Mr Brandstätter’s warning about the downsides to the rapid roll-out of electric cars comes despite a recent announcement by the Chinese government that it intends to instigate a new round of subsidies for so-called New Energy Vehicles (NEVs) from 2024 through to the end of 2027.

The RMB520 billion ($AU108 billion) tax-relief package is aimed at encouraging new vehicle buyers in China to choose electric vehicles and plug-in hybrids over conventional internal combustion-engined models and used vehicles by offering an exception on purchase tax, which currently stands at 10 per cent.

Worldwide electric vehicle sales increased by 55 per cent in 2022 – 10.1 million deliveries – compared to a year earlier. China accounted for the largest share, with a total of 5.9 million electric-car sales over the same period.

Outlining the Volkswagen Group’s plans for the Chinese market, Mr Brandstätter said the company would not abandon the petrol car market despite slowing sales.

“We will continue to leverage our advantages in the (petrol) engine market,” said Mr Brandstätter.

Although its overall size is shrinking, the Volkswagen Group still maintains considerable profitability by virtue of its scale and cost amortisation advantages.

“By 2030, we will launch a total of 17 new (petrol) engine models,” said Mr Brandstätter. “In addition, we are promoting the development of hybrid technology and gradually transforming petrol models to plug-in hybrids, becoming a strong player in this market segment.”

So far in 2023, Volkswagen has increased its share of the Chinese new-car market from 18 to 20 percent.

As part of its efforts to become more competitive and improve profitability, Mr Brandstätter said: “Volkswagen is accelerating at ‘China speed’,” reiterating recent comments made by Volkswagen Group CEO, Oliver Blume, that the development time of the conglomerate’s new cars and technologies will be shortened by up to 30 percent.

In spite of his warnings over the electric vehicle market, Mr Brandstätter confirmed the Volkswagen Group is holding firm to plans to launch 30 new electric vehicles in China by 2030.

“Our new ID. 7 is opening up a new segment,” said Mr Brandstätter. “And with other new (electric cars) soon to roll off the production line at Volkswagen Anhui, as well as new models from Audi on the basis of the Premium Platform Electric (PPE), we plan to expand our range of fully electric vehicles to 30 models by 2030.”

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