Automotive News Europe — 2026-11-03
Automotive Industry
Volkswagen Group once counted on China’s profits to fund its global plans. Now it is cutting costs and capacity to stem losses there while exporting China-built vehicles abroad to keep factories busy.
The shift comes as Chinese consumers pivot to domestic brands and electric vehicle sales accelerate, outpacing the combustion-engine models that make up most of VW’s and other Western automakers’ sales in China.
VW has repeatedly cut its China market forecasts and has shrunk its operations each time. The automaker is increasing exports of vehicles built in China to remain competitive, particularly in markets where it faces growing pressure from Chinese rivals such as BYD.
VW is targeting exports of 200,000 to 300,000 China-built vehicles to markets including Mexico and South America by 2030, Chief Financial Officer Arno Antlitz said during the automaker’s third-quarter earnings call on Oct. 29.
The automaker has already begun shipping China-built VW and Jetta models to the Middle East, sub-Saharan Africa and Central Asia, with Mexico, Egypt and Vietnam set to follow by year-end, Bloomberg reported.
VW is also exploring assembly of China-developed vehicles in Turkey. Turkish distributor Dogus Otomotiv confirmed it had signed a letter of intent with VW Group to explore local production. The project would involve models from VW’s Chinese joint venture with FAW, assembled from completely knocked-down kits, Automotive News Europe’s sister publication Automobilwoche reported.
Antlitz said VW expects China’s new car market to be between 19 million and 21 million in 2030, which would reduce the group’s vehicle sales by 2.1 million to 2.3 million if the automaker keeps its 11 percent market share. “Like our competitors, we will try to fill the gap with export opportunities,” he said.
Shipping more vehicles from China will help VW to use excess Chinese capacity while serving markets where combustion-engine vehicles remain in demand, but the strategy has limits.
VW’s Chinese competitors are also expanding overseas, extending China’s intense price competition into the same markets VW is targeting. China-built Volkswagens could also displace vehicles supplied by the group’s factories elsewhere, shifting the burden of excess capacity rather than resolving it.
VW Group deliveries in China fell 30 percent to 1.4 million vehicles in the first nine months. The automaker’s equity-accounted Chinese joint ventures posted an operating loss of €113 million ($126 million), compared with a profit of €744 million a year earlier, according to the company’s earnings report.
Antlitz warned that weak fourth-quarter trading could push the ventures into a full-year operating loss.
Audi and Porsche are also suffering in China
China has been a key source of earnings for the VW brand, Audi and Porsche, all of which have been hit hard by sharply declining sales in the country.
Audi reported that its contribution from China, including joint-venture income and brand-related payments, fell 90.2 percent to €38 million in the first nine months. Revenue from components supplied for Chinese production also declined. Audi warned that competition in China was driving “unsustainable pricing levels.”
Porsche deliveries in China fell about 33 percent to 21,493 vehicles in the first nine months, according to the company’s earnings report. Jochen Breckner, Porsche’s finance chief, told analysts that China would remain a headwind in 2027.
Other European automakers are also reassessing their prospects. Mercedes-Benz has said it will reshape its China business, while Volvo Cars CEO Hakan Samuelsson described the opportunity to sell Western-developed vehicles in China as “gone.”
Antlitz said he expects China’s automotive market to stabilize, albeit at a much lower level than VW anticipated just six months ago. VW needs to eliminate another 500,000 units of production capacity to adjust to a smaller market, he said.
“The overall market in China is in free fall,” VW’s China chief, Ralf Brandstätter, told German business newspaper Handelsblatt, citing consumers’ concerns about job security and declining confidence in the future. “China is no longer a growth engine. We are adapting to that.”
VW has 13 vehicle plants and 21 component plants and employs about 70,000 people in China, including its joint ventures with FAW and SAIC and a wholly owned EV factory in Hefei, Anhui Province.
Antlitz said the workforce has been reduced by about 20,000 since 2019. He indicated that further job cuts would be needed.
Industry watchers expect VW’s China business to continue shrinking. “I don’t see a way back for Western OEMs,” said Matthias Schmidt, an independent automotive analyst. “One should be surprised by the pace of change in China, but not that the market now favors domestic brands. That is the pattern we see across Europe, Japan, the U.S. and Korea, and now it is China’s turn to buy local.”
China becomes benchmark for European cost cuts
VW is using its Chinese operations as a benchmark to reduce costs in Europe.
Antlitz told reporters that Chinese development teams were initially tasked with cutting platform costs by 40 percent. Continued price declines prompted VW to raise the savings target further, ultimately achieving reductions of about 47 percent to 48 percent.
Those results are helping establish cost targets for VW’s next generation of vehicles elsewhere.
The automaker is benchmarking components for its SSP electric-vehicle platform against costs achieved in China, including electric motors, batteries, steering systems and seats, Antlitz said.
European development teams face strict component-cost targets based on those comparisons, adjusted for the higher costs of local production. VW plans to import an electric motor from its Chinese manufacturing operations for its upcoming €20,000 entry-level EV based on the ID Every1 concept, significantly reducing costs, Antlitz said.
The automaker is developing technology locally to compete with Chinese rivals’ software-focused electric vehicles, including its new Vega technology stack tailored to Chinese customer preferences. Vega integrates VW’s China vehicle platforms, electronic architecture and advanced driver assistance systems, and is set to achieve Level 3 automated driving technology readiness in 2027. The group is evaluating whether elements could be used in Europe.
VW’s broader strategy remains based on separate electronic architectures developed with Rivian for Western markets and with Xpeng for China, Antlitz said.