The size of Volkswagen’s Hefei complex reveals something that the press releases fail to adequately convey when you walk through the gates on a weekday afternoon. Dark blue-jacketed engineers move back and forth between structures. Idling close to the loading bays are test cars with badges in characters that the majority of Wolfsburg veterans are still unable to read. Looking at it, it seems like this is no longer a satellite operation. It’s the company’s future, or at least the version of it that still aspires to be significant in Asia.
This is Volkswagen’s largest research and development facility outside of Germany, and it has invested about €3 billion in it. The wager is simple and harsh. The previous method of conducting business in China, which involved creating automobiles in Europe, giving local partners the blueprints, and collecting royalties on a market it had previously owned outright, is no longer viable. The group’s CTO for China, Thomas Ulbrich, has stated as much in simple German. “This business model is now gone.” It’s difficult to disagree with him.
The statistics supporting that claim are sobering. VW sold a record 4.23 million vehicles in China in 2019. In the same market, BYD shipped 4.21 million, but by 2024, that number had dropped to 2.93 million. Dominance for forty years, surpassed in about five. Those numbers evoke a sense of historical vertigo, similar to how Kodak used to own film and Nokia used to own cell phones.
The head of the China group, Ralf Brandstỹ, has been surprisingly direct about the situation. 2025 will be a year of reconstruction, according to him. He has publicly stated that VW will not put incentives on the hood of every vehicle it ships in an attempt to gain market share. He told Handelsblatt, “Those who can only sell their cars through rebates are harming their brand.” He might be correct. Since matching BYD on price would result in negative margins on a scale that no German supervisory board could survive, it’s also possible that he is acting out of necessity.
In China, there are currently 130 brands vying for EV and plug-in hybrid consumers. It’s a demolition derby, not a market. Very few people are earning money. Just months after Evergrande’s $300 billion default rocked the real estate market and destroyed middle-class confidence, Tesla began slashing prices in late 2022. The smartphone manufacturer Xiaomi now produces a sedan that resembles a Porsche Taycan and retails for about $30,000. Observing this from Wolfsburg must be like witnessing a rewriting of the laws of physics.
VW’s response can be described as disciplined retreat. Hefei will manufacture automobiles designed especially for Chinese drivers—models that might never be seen on a European autobahn. Some might wind up in the Gulf or Southeast Asia. A Jetta-branded EV with a price tag close to €15,000 is anticipated to be part of the first wave, which will be constructed on the new CMP platform. A second wave, on the upscale CSP architecture, follows in 2027. No spreadsheet can determine whether buyers in Chengdu or Shenzhen will be concerned.
According to Morningstar equity analyst Rella Suskin, the approach will help VW maintain its present position rather than regain lost ground. It’s a sober read. The days of “super-profits” from China are over, according to Brandstück himself. There’s a sense that VW isn’t actually funding a comeback in Hefei. The right to remain at a table that has been entirely reconstructed around it is its relevance.
