Auto Industry

Twin engines

Why a 1% stake in Volkswagen’s China JV offers Audi a new route


Gearing up for a second China JV

It’s an all too familiar tale and one that WiC has relayed many times over the years. A company’s long-standing boss is arrested and thrown in jail for suspected fraud, leaving his firm with crippling fines for its misdemeanours.

But this is not a story about a Chinese company, although the CEO in question was discussing his China strategy only days before he found himself incarcerated in Germany’s Augsburg-Gablingen prison. His name is Rupert Stadler, the man who turned Audi into China’s best selling luxury car brand and who wanted to double sales again by 2023.

Stadler is now being forced to face up to the fallout from the emissions scandal that originally engulfed Audi’s parent, Volkswagen (VW), and has so far resulted in $30 billion worth of fines.

In Germany, Stadler’s arrest has diverted the spotlight away from news that Audi has purchased a 1% stake in SAIC Volkswagen, the joint venture in which VW owns a 48% stake. The investment might not seem like much, but as Caixin reports, it represents a “significant step forward” in Audi’s plan to establish a second Chinese joint venture. As we reported in WiC347, its existing JV with FAW Group has not been without its problems. In part because the German carmaker wants a larger share of the profits, but also because a swathe of senior FAW officials have been jailed for corruption themselves over the past few years.

The internal disruption is one of the reasons why Audi has been losing ground to a resurgent Mercedes-Benz. Since Germany’s three luxury car manufacturers first entered China in the 1980s they have swapped the crown between themselves much like an auto-equivalent of the Holy Roman Empire: Mercedes-Benz handed it over in the mid-noughties to BMW, who then passed it on to Audi a few years later.

Mercedes-Benz is keen to claim top billing again. It regrouped in 2012 and set up a new joint venture with Beijing Automotive Group. This resulted in strong sales growth from 370,000 cars in 2015 to 587,868 in 2017. Audi’s growth has been much slower, with sales rising from 570,000 in 2015 to 597,866 in 2017 (BMW currently sits third).

According to Automotive News China, Mercedes outsold Audi in the first five months of this year.

However, Audi’s plan to shift some of its production to SAIC has not proven straightforward. For one thing, it caused a dispute with its existing FAW dealerships when the strategy became known in 2017. This not only held the investment back, but also forced the company to postpone plans to release a new model with SAIC until 2022.

The Economic Observer notes that while SAIC is China’s largest car manufacturer, the new joint venture is not without its risks. While a number of foreign car companies have more than one joint venture, none have two different companies making the same brand.

“Audi’s position in China is down to the decades of hard work that FAW Group has put in,” the newspaper comments. The new ties with SAIC must have left FAW management less endeared with the phrase ‘vorsprung durch tecknik’.

Meanwhile, Audi’s premium SUV, the Q8, will make its global debut in Shenzhen this month – with Autocar suggesting the launch in China signifies two things. Firstly, that one of the big three German brands now considers a luxury SUV and not a saloon car as the pinnacle of its brand. And secondly, that “China is becoming the centre of the automotive world – if it is not there already,” Autocar reckons.

This conclusion did not sit well with some of Autocar’s Western readers. “I cannot think of a single thing they [the Chinese] have done to contribute to the design, engineering, style and character of cars,” wrote one. But another replied that a market of 1.4 billion consumers is the key. “China might one day be the centre of something, but for the time being it’s just a place where people buy in bulk whatever we design and manufacture.”

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