A bright orange robot, 10 feet tall, looms over Volkswagen’s new electric car assembly line in central China. It was imported from Germany. The factory’s other 1,074 robots were made in Shanghai.
Volkswagen used to import shock absorbers from Central Europe for cars it makes at Chinese factories. Now it buys them from a company in China for 40 percent less.
After relying for decades on engineers in Germany to design cars for the Chinese market, Volkswagen has begun hiring for a team of nearly 3,000 Chinese engineers, which will include hundreds transferred from Volkswagen operations elsewhere in China. They will design electric cars at VW’s industrial complex in Hefei, a city in central China.
The new strategy, which Volkswagen calls “In China, for China,” is another sign of how China’s commanding lead in electric vehicles has upended global auto making. Chinese car brands are appearing more in Germany and throughout Europe, causing politicians to worry about job losses.
But Volkswagen is doubling down on its business in China, which is the world’s largest car market and also Volkswagen’s biggest market. VW’s aim is to match the speed and efficiency of Chinese electric car manufacturers, which have seized a rapidly growing share of the Chinese car market. That has caused sales of the German car maker’s gasoline-powered vehicles to plunge in China.
China’s city governments and state-controlled banks have been pouring money into electric car makers, helping them build new factories faster than their sales have grown. The resulting overcapacity has triggered a price war that has pushed electric car prices down sharply. Volkswagen wants low costs to make sure its electric cars can be priced competitively. So it plans to start production in Hefei in the coming weeks of its new Tavascan sport utility vehicle for sale in China and export to Europe.
“We all know how difficult it is to make money on electric cars,” said Ralf Brandstätter, the chairman and chief executive of VW’s overall China operations.
The need to reduce costs is so great that it has also meant painful cuts in Germany — a difficult choice for a company that has been a pillar of German industry since the 1930s. The German state of Lower Saxony owns nearly 12 percent of the company. European labor leaders hold nearly half the seats on the company’s supervisory board.
Volkswagen is looking to shrink its costly, heavily unionized work force in Europe, as well as trim its reliance on high-cost European auto parts manufacturers. Executives began breaking the news in late November to staff at the company’s headquarters in Wolfsburg that job reductions in Europe will have to be part of a 10 billion euro, or $10.9 billion, worldwide cost-cutting plan started earlier this year.
“To increase our efficiency, we have to reduce our work force,” Oliver Blume, Volkswagen’s chief executive, said told the German newspaper Frankfurter Allgemeine Zeitung.
Volkswagen is the longtime leader for gasoline-powered cars in China, holding almost a fifth of the market through two big joint ventures with Chinese state-owned companies. But it sells less than 3 percent of the country’s electric cars.
VW is racing to catch up. Its new factory in Hefei is designed to churn out 350,000 cars a year initially, more than the industry standard size of 250,000 or so. And the buildings have been built with large expanses of empty space inside, so that further equipment can be quickly installed to ramp up production even higher.
Despite its aggressive new push in China, Volkswagen must compete with a domestic auto sector that receives heavy government assistance. Just 30 miles from its Hefei factory, a Chinese electric rival, Nio, has opened its second factory. Its operation is in some ways even more advanced than Volkswagen’s — sections of the assembly line are essentially mobile and can be rolled to new locations.
The local government provided the land and the building, said Ji Huaqiang, Nio’s vice president for manufacturing. “Nio does not own the factory or the land — it is renting, but the factory was custom built for Nio,” he said.
Nio’s two factories give it the capacity to assemble 600,000 cars a year, even though its annual rate of sales this autumn is only about 200,000 cars. Nio is nonetheless already building a third plant.
Volkswagen executives say that with China doing so much to build up its car industry, they have to be involved. “To build up a Chinese automotive industry,” Mr. Brandstätter said, “was a clear target always of the industrial policy of the government.”