VW vs Tesla in China

Volkswagen to take on Tesla in Chinese EV market

Image credit: Dreamstime

The announcement that Volkswagen (VW) will build an electric SUV for the Chinese market could mean trouble for the foreign incumbent: electric vehicle manufacturer Tesla.

With VW announcing its plans to manufacture an electric sports utility vehicle (SUV) for the Chinese market, the competitive climate in the Asian economy within the next decade could majorly heat up in the world's largest electric vehicle (EV) market.

VW stepping into the ring of EV manufacturers could affect US electric vehicle manufacturer Tesla - which is already selling its Tesla X SUV in China - and could challenge the US car maker's market position in the coming years, which already experienced tougher market conditions

If the German car manufacturer is successful in its endeavor to sell a competitive EV SUV product, Tesla could be forced to hand over a market share. 

In the midst of a slowing economy and a slump among the broader auto market, local and foreign car manufacturers bid on the electric cars as China's government grants preferred treatment under its green federal policies to promote EVs. Many, including smaller manufacturers, are said to be waiting for a chance to compete with Tesla.

The ID Roomzz, the latest in VW's ID Family, was announced in the run-up to Shanghai International Automobile Industry Exhibition. The zero-emissions vehicle will be available from 2021.

VW Chief Executive Herbert Diess said that the firm plans to produce more than 22 million electric cars in the coming 10 years and that half of his company's engineers are working on products for the Chinese market.

Volkswagen has gained the trust of many Chinese consumers. In 2018, it announced a sales record but struggled at the beginning of 2019. 

Its sales strategy includes China as a substantial part of its growth strategy. The automaker also announced the compact Jetta earlier in the year. The product is not an electric vehicle but aggressively targets Chinese first-time car buyers residing outside metropolitan regions where growth potential remains high and government restrictions relatively feeble.

With Jetta (VW is promising to introduce a sedan and two SUVs later in the year) the company is in the race to further foster its position in China and to win over customers among the quickly growing middle class, many of whom are unable to afford a first car.

With an increased focus on China, VW may hope to make up for substantial losses from the diesel emissions scandal that still haunts the firm in reputational damage. In China, the scandal caused moderate ripples with only 1,946 imported Tiguan SUVs and four imported Passat B6 sedans to be recalled. 

In 2015, a group of business and environmental leaders, including Tesla CEO Elon Musk advocated to let regulators “absolve” VW of recalling 85,000 diesel vehicles affected by the scandal in the US, and instead should be allowed to accelerate the rollout of zero-emissions vehicles.

Yesterday, VW saw its former chief executive Martin Winterkorn, charged in Germany over the involvement in the company's scandal.

Tesla will unlikely to give up China without a fight. In March, news broke that Tesla will ramp up production in China and mass-produce a compact SUV - called Model Y. It's the fourth edition in Tesla's production line and expected to go to market next year. It will start at $39,000 (£29,800) and be considerably less pricey than the Model X luxury SUV.

Reporting by Cleantechnica in February suggests that the total share that foreign car brands in China remains at solid five per cent, but grows to eight per cent when import figures are included. VW holds two per cent of the market - by far the best-selling foreign brand in China, while Tesla holds a further two per cent.

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