In recent days, SAIC Volkswagen Automotive Co., Ltd. (“SAIC Volkswagen”), a joint venture automobile manufacturer between China and Germany, responded to rumors about the closure of its factory in Nanjing, stating that the adjustment of production bases is a necessary business measure. Several joint venture car companies have announced the closure of factories in China and layoffs recently, reflecting multiple changes in the Chinese automotive market and economic environment.
SAIC Volkswagen is planning to close its factory located in Nanjing, Jiangsu in 2025. The factory currently employs over two thousand workers and is mainly responsible for producing various models under the Passat and Skoda brands. SAIC Volkswagen plans to transfer some of the Nanjing factory staff to another factory in Yizheng, Jiangsu, which currently focuses on producing the Lavida model.
SAIC Volkswagen recently told Chinese media that the Nanjing factory is currently operating normally, and the production and sales of the Passat series models have not been affected. The company stated that it will introduce a series of new products covering traditional fuel vehicles and new energy vehicles based on market demand and product planning. With the launch of these new products, the company will adjust and plan its production bases accordingly.
SAIC Volkswagen is one of the earliest joint venture car companies in China, celebrating its 40th anniversary in 2024. Currently, it has eight factories in China, including two in Jiangsu, three in Shanghai in Anting Town, as well as factories in Zhejiang Ningbo, Hunan Changsha, and Urumqi Xinjiang.
The production base of SAIC Volkswagen in Jiangsu was the first factory set up outside Shanghai. In December 2007, SAIC Group merged with Nanqi Group, and SAIC Volkswagen took over the factories under Nanqi Group and established the Nanjing factory. According to SAIC Volkswagen, the Nanqi Group’s factory was selected early and due to urban expansion, the current Nanjing factory is getting closer to the city center. Additionally, SAIC Volkswagen also has a factory in Yizheng, Jiangsu, only 80 kilometers away. For economic reasons, SAIC Volkswagen is reevaluating its production capacity layout in Jiangsu.
Previously, several high-level officials of SAIC Volkswagen told Chinese media that the company is accelerating the electrification process and will continue to launch electric and hybrid models in the future. They mentioned that based on a new corporate strategy and product layout, SAIC Volkswagen is conducting a comprehensive assessment of all its production bases nationwide to optimize production capacity allocation.
In July 2023, SAIC Volkswagen announced that its first factory in Anting, Shanghai would permanently close. The factory primarily produced Volkswagen Polo, Skoda Jingrui, and other small cars, and its production capacity was merged into the Yizheng factory.
The consideration of closing the Nanjing factory by SAIC Volkswagen may be related to cost-cutting plans with the Volkswagen Group. On September 2, the Volkswagen Group announced the possible closure of German factories. On September 10, the group revealed plans to cancel several job security agreements, breaking the earlier promise of no layoffs in Germany before 2029. On September 21, there were reports that the Volkswagen Group in China also plans layoffs, affecting hundreds of employees.
Recently, several joint venture car companies have announced the closure of Chinese factories and layoff plans. Dongfeng Honda plans to close a factory with an annual production capacity of 240,000 vehicles in November this year. In June this year, Dongfeng Nissan had already closed a small factory in Changzhou, Jiangsu.
Sun Guoxiang, a professor at the Department of International Affairs and Business at Nanhua University in Taiwan, stated that the closure of Chinese factories and layoffs by joint venture car companies reflects multiple changes in the Chinese automotive market and economic environment.
On September 25, Sun Guoxiang, in an interview with The Epoch Times reporter, mentioned that with the rise of electric vehicles and new energy vehicles, the traditional fuel vehicle market has shrunk, posing a severe challenge for many traditional car companies in adapting to new market demands. For joint venture enterprises like SAIC Volkswagen, the pressure of market transformation is particularly significant. Meanwhile, local Chinese electric vehicle companies like BYD and Xiaopeng are rapidly emerging, engaging in fierce competition with foreign brands. Under the dual pressure of coping with emerging local companies and international brands, joint venture car companies are experiencing a decline in market share and increased operational challenges.
In recent years, China’s automotive industry has suffered from overcapacity, leading to low capacity utilization rates in many factories. Additionally, as labor costs in China rise, some foreign car companies are gradually seeking markets with lower production costs. Sun also indicated that the Chinese government has increased subsidies and policy support for new energy vehicles, further intensifying the pressure on traditional car companies, especially those that have not timely transitioned or invested enough resources in the new energy field among joint venture companies.
SAIC Volkswagen had a glorious past in the Chinese market, holding a steady position among the top three passenger car sales for years. The launch of the Santana model created a sensation. From 2016 to 2019, SAIC Volkswagen enjoyed a golden period with sales exceeding 2 million vehicles for four consecutive years.
With the rapid development of the Chinese new energy vehicle market, the market share of traditional fuel vehicles has significantly decreased. As a result, many traditional car manufacturers face overcapacity issues, and SAIC Volkswagen is no exception. In 2020, SAIC Volkswagen’s sales plummeted to 1.505 million vehicles, followed by 1.242 million, 1.32 million, and 1.215 million vehicles over the next three years.
Recently released production and sales reports from SAIC Group showed that SAIC Volkswagen’s production in the first eight months of this year was 683,900 vehicles, a 4.58% year-on-year decrease, while sales were 678,100 vehicles, down by 4.81%. In August, SAIC Volkswagen produced 86,300 vehicles, a 24.67% year-on-year drop, with sales of 110,000 vehicles, a 22.75% decline.
Driven by China’s national policy, the rapid development of new energy vehicles has led to overcapacity issues. In April this year, U.S. Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz visited China, raising concerns about China’s automotive overcapacity issues, which were denied by Chinese officials. Due to overcapacity, competition between Chinese car companies has intensified, leading to a price war. The price war officially began in early 2023, escalating in the following months.
According to data provided by Bloomberg New Energy Finance analyst Lu Jinghong to Chinese media recently, the average price reduction of Chinese new energy vehicles has increased from 6,700 yuan (approximately $979) in the first quarter of last year to 16,000 yuan (approximately $2,252) in the first quarter of this year. This change has nearly made the weighted average selling price of new energy vehicles equivalent to that of traditional fuel vehicles, with about two-thirds of new energy vehicles priced lower than similar fuel vehicles in the market.
Officially supported new energy vehicle enterprises in China have long been in a state of losses. The China Automobile Dealers Association issued an emergency report to the Chinese government regarding the collapse of the dealer funding chain caused by the “price war” on September 23. Monitoring data cited in the report showed that by August this year, the price war had resulted in total retail losses of up to 138 billion yuan (approximately $19.6 billion) in the new car market.
Taiwanese economic expert Huang Shicong told The Epoch Times that the intense competition in the Chinese automotive market has been exacerbated since last year, leading to significant continuous reductions in car prices. The primary reason is China’s automotive overcapacity, where supply exceeds demand. Additionally, with China’s export channels for cars being blocked by Western countries, excess production capacity can only remain in the domestic market, further intensifying competition.
Huang stated, “In this backdrop, car companies naturally view the outlook for manufacturing cars in China with concern.” He added that, on the other hand, as Chinese people’s incomes decline, they are more inclined to purchase lower-priced domestic cars rather than relatively expensive foreign brands. He further explained, “In this situation, foreign car companies can only choose to withdraw, or they will be drawn into China’s intense price war and may face even more severe conditions in the future.”
The pricing systems of the traditional luxury car brands from Germany, the “BBA” – BMW, Mercedes-Benz, and Audi, have also faced collapse in the Chinese market. BMW’s prices have been greatly reduced, Mercedes-Benz models have seen significant declines, and some Audi models are priced below 200,000 yuan. As leading traditional luxury car brands, their values in the Chinese market are continually decreasing.
In the first half of 2024, both BMW and Mercedes-Benz experienced declining trends in the Chinese market. Although the Volkswagen Group did not disclose Audi’s specific sales in China, it stated that Audi’s deliveries in China decreased by 7.4%. Meanwhile, Porsche suffered the most significant sales decline, reaching 33%.
As a new energy model under BMW, the BMW i3 has become one of the brand’s heavily discounted models. Its original price was 353,900 yuan (approximately $49,600), but prices have nearly halved, with discounts as high as 170,000 yuan (approximately $23,800).
Mercedes-Benz and Audi have also adjusted prices for their main models. In July this year, the final prices for the Mercedes-Benz C260 and Audi A4L were around 200,000 yuan (approximately $28,000), representing a significant decrease of about 100,000 yuan (approximately $14,000) from the suggested retail prices. At the same time, new energy models are generally sold at discounts of 30-40%, with the price of the Audi Q4 dropping to below 200,000 yuan, and the Mercedes-Benz EQE, originally priced over 530,000 yuan, has been reduced to around 370,000 yuan (approximately $51,800).
In August this year, the BMW Group released its financial report for the first half of 2024, showing vehicle deliveries in the Chinese market totaling 376,300, a decline of 4.3% year-on-year. However, BMW did not disclose the revenue and profit situation for the first half of the year in China separately.
The Mercedes-Benz Group stated in its financial report that the overall Chinese market saw a slight contraction. In the first half of this year, the group’s sales in China decreased by 9% year-on-year, down to 341,500 vehicles. Meanwhile, Audi Group’s vehicle sales in China in the first half of the year reached 322,000 vehicles, down by 2%.