Skoda may exit China to help VW

Skoda may exit China to help VW

Automotive News Europe — 2022-12-11

Automotive Industry

Skoda may exit China amid intense competition from local brands in the world's biggest market.

"We will look together with our Chinese joint venture partner at how we want to continue there," Skoda CEO Klaus Zellmer told Automotive News Europe sister publication Automobilwoche.

Skoda's withdrawal from China would allow parent Volkswagen Group to concentrate its efforts in the country on its main VW brand, which is struggling in the face of domestic competition.

Instead of completely pulling out of China, Skoda could also consider only selling imported cars. Skoda's Chinese models are cuurently built in VW Group joint venture factories. "If we want to focus our efforts, it's worth looking at the scenarios and then deciding," Zellmer said.

Skoda had a 0.6% market share in China in 2021. The brand's Chinese deliveries were down 31% to 36,300 vehicles in the first three quarters, according to its financial report. Its global deliveries fell 22% to 544,500 during the same period.

India, Vietnam in sights

Leaving China would help the brand to focus more on India, for which it has responsibility within the VW Group.

Skoda also said in October that it plans to start selling and building cars in Vietnam, where it says there is "considerable growth potential."

The brand sees an annual sales potential of up to 40,000 vehicles in Vietnam, including cars built from completely knocked down kits at a local factory due to open in 2024.

Russia hit

Skoda is also responsible for VW Group's Russian business, which has come to a standstill. After the invasion of Ukraine in February, the group halted production and sales in Russia.

This is putting pressure on Skoda's earnings.

"The consolidation of Volkswagen Group Rus within our financial results naturally poses a particular challenge for Skoda," Zellmer said, "with a negative effect on the operating result for the year in the mid-triple-digit millions."

How things will continue in the country is an open question, he said. "The future of the market in Russia is uncertain."

VW Group said in a statement to Reuters that it was normal business procedure for Skoda to continuously be checking its position in international markets and adapt that to local developments. "There have been no decisions so far on possible modifications in our strategy," the company said.