Volkswagen to stop production at jointly-owned China plant

The German automaker Volkswagen is contemplating a significant operational change in China, which is the world's largest automotive market. According to an insider with direct knowledge of the situation, the company is planning to cease production at one of its combustion engine car manufacturing facilities in the country. This move is indicative of the broader challenges faced by automakers in managing excess production capacity in the Chinese market.

According to a source the plan involves a gradual transition of production for Volkswagen's Passat range vehicles. The current manufacturing site in Nanjing is set to be phased out, with production being redirected to another factory located nearby, also within Jiangsu province. This strategic shift is being undertaken in collaboration with SAIC Motor, Volkswagen's joint venture partner in China.

However, it's important to note that the details of this transition are not yet fully solidified. The joint venture has not established a concrete timeline for the relocation process. Moreover, the ultimate fate of the Nanjing facility remains undecided. Options under consideration include a complete closure of the plant or potentially putting it up for sale.

As part of this restructuring, some of the workforce currently employed at the Nanjing factory will be offered the opportunity to transfer to SAIC-VW's Yizheng plant. This facility is currently responsible for producing the Lavida sedan, which stands as the brand's top-selling model in the region.

In addition to these production changes, Volkswagen and SAIC are exploring strategies to reinvigorate sales of the Skoda brand. This Czech marque, which is part of the Volkswagen Group, has seen its market share within the SAIC-VW portfolio diminish significantly. In 2018, Skoda accounted for a substantial 17 per cent of SAIC-VW's total sales. However, this figure has since plummeted to a mere one per cent, prompting the need for a revitalisation strategy.

Bloomberg News had previously reported on plans to close two factories, one in Nanjing and another in Ningbo. However, two sources have refuted the claim regarding the Ningbo plant, which is one of the largest facilities in the joint venture's portfolio, second only to its three factories in Shanghai.

When approached for comment, Volkswagen adhered to its policy of not addressing speculative matters. SAIC, for its part, was not immediately available to provide a statement on the situation.

This strategic realignment comes at a challenging time for Volkswagen in China. Despite its long-standing position as the top-selling automaker in the country, the German giant has been grappling with a declining market share. In response, Volkswagen is not only working with SAIC but also collaborating with other partners, such as Xpeng, to introduce new models that it hopes will bolster its competitiveness in the rapidly evolving Chinese automotive landscape.

Previous reports from Reuters indicated that SAIC was aiming to reduce its workforce by 10 per cent in 2024, not only within the SAIC Volkswagen joint venture but also across other partnerships. This decision comes in the wake of significant sales declines. To put this into perspective, the Volkswagen-SAIC joint venture sold 1.2 million vehicles in 2023, marking a substantial 43 per cent decrease from its peak performance in 2017.