Between Volkswagen and China, the honeymoon will have lasted four decades. Arrived in the country on the eve of the 1980s, the German giant produced its millionth vehicle there twenty years later. In 2013, it approached the milestone of 20 million cars. His boss Martin Winterkorn – whom the Dieselgate scandal had not yet swept away – extolled to anyone who wanted to listen the virtues of his Chinese partner. “Volkswagen is banking on China’s capacity for innovation: this market gives a decisive boost to our industry thanks to new revolutionary trends”, declared the powerful leader to Chancellor Angela Merkel, during a visit. from the Chengdu plant.
When the French Renault and PSA broke their teeth there, the German giant continued to spin the perfect love with the Asian power. But in the first quarter of 2023, the Chinese Eldorado slipped out of Volkswagen’s hands. He who monopolized the place of the biggest seller of automobiles in the country was forced to hand over his crown to a local competitor: BYD. An earthquake for Volkswagen, whose dependence on China has grown steadily over the years, the country representing 40% of its global sales. And a change of era for the entire German automotive industry. Over the years, Volkswagen, BMW and Daimler had carved out a place for themselves in the Chinese market thanks to their high-end positioning and their mastery of the internal combustion engine, a technology that local competitors never knew. tame.
Hesitations in the electric car
But times have changed. Once mocked for their improbable thermal cars, Chinese manufacturers have established themselves at lightning speed as leading players in the electric world. With the exception of Tesla, no foreign manufacturer was among the ten biggest sellers of battery-powered models in China in the first quarter of the year – yet these vehicles represent a quarter of the Chinese market! Aware of this reversal of the balance of power, the president and founder of BYD, Wang Chuanfu, called in August on his rivals to join forces to “demolish the old legends” of the automotive sector. At the same time, Volkswagen announced a 700 million euro investment in local automaker Xpeng, with the hope that it will help it develop new electric cars for China. “It’s a major cultural change when you know how proud Germany is to be a nation of engineers,” says independent automotive analyst Matthias Schmidt.
Has the German automobile industry, the export engine of Europe’s leading power, been overconfident? What is certain is that she is paying for her hesitation in the electric car. Bosch’s procrastination is a first illustration of this. Diesel champion, the equipment manufacturer had given up internalizing the production of battery cells in 2018, doubting its competitiveness against Asian competition. Four years later, he went back on the attack as part of a joint venture with Volkswagen dedicated to battery production machines. A wet squib: Bosch finally jumped ship in May 2023, a year after the project was presented. Another example, Germany took its European partners by surprise at the beginning of the year by demanding from the Commission that thermal cars could still be registered after their ban in 2035… provided that they run on synthetic fuels. The result of lobbying by its national champions which speaks volumes about their difficulty in weaning themselves off the good old heat engines.
Increased investment in China
Trapped in the formula that made their fortune, “these players also come up against the question of integrated services in cars, with a delay in terms of digital technologies”, adds Thomas Grjebine, economist in charge of the program at the Center for prospective studies and international information (Cepii). Where the Germans have built their success on their gleaming mechanics, Chinese players have set about making their electric cars real smartphones on wheels – a promise that appeals to their highly connected domestic customers. This explains why Volkswagen has chosen to commit one billion euros to an innovation center dedicated to connected electric cars in Hefei, in the east of the country.
In order not to lose a foothold in China, BMW preferred to commit an equivalent sum to a battery factory in Shenyang, a city located not far from the border with South Korea. Investments all the more risky as the Chinese economy is going through a deep crisis, weighed down by sluggish domestic demand. But “German manufacturers are so exposed to China that they cannot leave in a snap, especially since they do not have immediate replacement markets”, defends Matthias Schmidt.
Too bad if these investments go against German national strategy. Aware of the increasingly embarrassing role of its partner on the political scene, the government of Olaf Scholz has indeed called for reducing dependence on China. For BMW, Volkswagen and Daimler, the stakes are high. Especially since the Chinese players are also determined to challenge them in Europe. Their sales remain limited for the moment: less than 50,000 cars in the first half. But their growth on the Old Continent is spectacular. And their intentions are clear: “We want to be the leader in new energy vehicles [électriques et hybrides, NDLR]not just in Europe, but in the world”, assured two leaders of BYD, passing through France in June.
The challenge of the “Mittelstand”
In the bays of the famous Munich Motor Show, which is being held this week, there is no shortage of Chinese players. Xpeng, Leapmotor, Dongfeng… Many people have made the trip. To compensate for the weakness of their domestic demand, they intend to attack the European market by importing models of very good quality across all ranges, all at ultra-competitive prices. At the same time, BYD and its discreet compatriot SAIC are seeking to set up production sites – the first is also the subject of an active court in France, anxious not to relive the humiliation of the failed deal with Tesla. However, this offensive falls all the more badly as the German manufacturers must already scrap with the Californian troublemaker. Accustomed to sensational announcements, the group of Elon Musk has filed a request to expand its Berlin factory. If it materializes, this project would make it the largest car production site in Germany, with an annual capacity of one million units.
What flood the European market, and complicate a little more the task of ocean liners across the Rhine. “Everyone is terrified by the situation, so much our economy depends on the automobile”, observes Matthias Schmidt from Berlin. Still, for this expert, “German manufacturers have accumulated a heritage and a brand image that protect them from the onslaught of competition. They have all the less to fear that by reducing its prices, Tesla will drop in range, going from ‘a premium offer for high-volume vehicles’. Will the shell be large enough to house the entire German industrial fabric? This is the issue.
Because beyond its emblematic manufacturers and equipment manufacturers such as ZF and Continental, Germany has built its know-how in the automotive industry thanks to a network of small and medium-sized companies, the hidden champions of the “Mittelstand”. Essential cogs, now heckled. “SMEs, in particular energy-intensive ones, have been very affected by the energy crisis that is shaking Germany. The increase in gas prices has reduced the margins they had to invest and position themselves in new niches”, relates Thomas Grjebine. In this new school year, Berlin has deployed a bouquet of tax relief, mainly intended for these precious companies. Its cost: more than 7 billion euros per year until 2028. A small sprain to the return of budgetary rigor in Germany.