Volkswagen booth, Haikou City, Hainan Province, January 9, 2021.
Text | "Caijing" reporter Qi Zhanning Wang Jingyi special writer Qiu Yao
Edit | Wang Jingyi
In the era of electric digital transformation, in the stage of sales decline in the Chinese market, volkswagen group (VOW3.DE, hereinafter referred to as "volkswagen group") is rearranging its troops.
On December 9, volkswagen's supervisory board announced a number of personnel adjustments, with CEO Herbert Diess being re-elected under union pressure and Volkswagen Group China (hereinafter referred to as "Volkswagen China") replacing ralf Brandsttter.
As a huge car company with a history of nearly 100 years, Volkswagen is facing a critical moment in the digital transformation of electric power. Previously, Diess' transformation plan was slightly radical, causing a lot of internal controversy, but Volkswagen's supervisory board finally decided to keep Dies, which also demonstrated its determination to transform.
Another core issue of the Supervisory Board is the re-energization strategy, volkswagen will invest 89 billion euros in areas such as electric mobility and digitalization in the next five years, and new electrification platforms, software technologies, and autonomous driving are all on the agenda.
Volkswagen's transformation path has not been smooth in China. 2021 is the year when Volkswagen's ID. series electrification products are intensively listed in China, but at the moment when local brands are soaring, "Volkswagen's Future" does not show the expected advantages, at least not compared to the performance of the same products in Europe.
Chen Qingtai, chairman of the China Electric Vehicle 100 Association, told Caijing that a major feature of China's new energy vehicle market in 2021 is that global auto companies are collectively working in China, and global brands are entering the Chinese market. In the past, in fuel vehicles, the Chinese market was the main competitive market for global car companies, and now on new energy vehicles, it has changed from the original competition of Chinese car companies in the local automobile market to the global competition of global car companies in the field of new energy.
According to a report by consultancy Roland Berger, China is the only major auto market where new car-making forces can compete with traditional automakers, with local Chinese manufacturers and new car-making forces dominating the domestic electric vehicle market. Even Volkswagen, the market leader in fuel vehicles, faces significant challenges in selling its new all-electric models in China.
According to the third quarter of 2021 financial report released by volkswagen group at the end of October, the company's revenue for the quarter was 56.93 billion euros, down 4.1% year-on-year, the operating profit was 2.596 billion euros, down 18.44% year-on-year, and the operating profit margin fell from 5.4% last year to 4.9%. In the third quarter, the Volkswagen Group delivered 1.97 million vehicles, down 24% year-on-year, and a total of 2.55 million vehicles were delivered in the Chinese market in the first three quarters, down 4.1% year-on-year.
THE CEO struggled to stay in office
The Volkswagen Group embarked on the largest personnel transfer in recent years.
Over the past few years, Diess has clashed with unions, even publicly declaring that if the company is not well managed, 30,000 employees will lose their jobs; Daniela Cavallo, the president of the Volkswagen Group union, countered that Des only cares about building relationships with Tesla and investors, ignoring the needs of employees, and that "a coach who no longer touches the team will lose the game on the court."
The departure of Diess became the core issue, and the final result was that Diess was retained in a "slashed" manner, and the focus of work shifted to the group business. Volkswagen Brand CEO Brad joined the board to take over the management of volkswagen, the core business.
Dis's right to speak is not a cold day. As early as June 2020, Diess clashed fiercely with the Supervisory Board, the former ending with a public apology and the removal of the TITLE of CEO of the Volkswagen brand as punishment, and the successor was The new Board of Directors, Bered.
In addition to the Group's full business, in early 2022, Diess will be in charge of the software division CARIAD (Car. I Am Digital) work. CARIAD is an important piece of the puzzle in Volkswagen's strategic transformation, planning to develop a software platform and a new generation of end-to-end electronic architecture software stack 2.0 in 2025, and will also be responsible for the software upgrade of the electric platform MEB and the on-board operating system VW.OS, as well as L4 level autonomous driving technology.
Diess had high hopes for the software department, and in September 2019, he said in an interview with Caijing that Volkswagen has formed a global-scale software department with 4,000-5,000 technicians, and in the next three years, either through acquisition or recruitment, the team structure of the global software department has reached more than 10,000 people.
On the other hand, Brad, which joined the Volkswagen Group in 1993, will take over the China business from August 1, 2022.
Diess endorsed his successor on social media platforms on December 10: "I've worked with Brad for six years and believe he's the right person to lead China's business into a digital and electrified future." ”
The top-level change will take half a year, with new board members starting early next year, and software division CARIAD and Volkswagen branding adjustments taking effect in January 2022 until the end of Brad's helm of Volkswagen China in August 2022.
At this giant company with nearly 700,000 employees, personnel changes are never easy. Previously, Dees wrote an article titled "How we transform Volkswagen", stating: "With the support of many people around me, I have achieved success in several areas, but not all of them, the most important of which is at Wolfsburg headquarters. Our Group has a diverse set of interests and political agendas that make the already challenging task more difficult and complex. ”
Arndt Ellinghorst, an analyst at the US investment bank Bernstein, bluntly argues that Volkswagen has a truly remarkable opportunity to shape the future of mobility that is electrified, digital and entertained. But there seems to be a lack of the right corporate governance to effectively and sustainably seize these opportunities.
The Chinese market fell short of expectations
Volkswagen unveils an all-electric vehicle in Dresden, Germany, November 3, 2021. Photo/Visual China
The reason why Volkswagen China's CEO adjustment has attracted much attention is because in China, the world's largest single market, Volkswagen is facing a stage dilemma of overall sales decline and difficult breakthroughs for new energy vehicles.
Stephan Wllenstein, the outgoing CEO of Volkswagen China, admits that Volkswagen's performance in the Chinese market in 2021 may be lower than that in 2020, when the outbreak began. Caijing reporter learned from Volkswagen (China) that from January to October 2021, volkswagen group's delivery volume in China fell by about 8% year-on-year compared with last year.
Among them, Luxury brands such as Audi, Porsche and Bentley have improved compared with last year, up 4%, 6% and 90% respectively, but the decline in sales of economic products has dragged down the overall performance, and the sales of many major models in the north and south, such as Langyi, Tiguan, Santana, New Passat, Tuyue, New Bora, Sagittarius, Magotan, and Tanyue, have recorded sales declines to varying degrees.
In this regard, Feng Sihan bluntly said that he was "not satisfied" and attributed it to the shortage of chips that plagued the entire industry. He said: "It's not that customers no longer love our products, but we can't keep up with customer needs in production, and even we can't achieve production according to the established plan." ”
Volkswagen's two largest joint ventures in China, FAW-Volkswagen and SAIC Volkswagen, achieved the first and third places in the sales ranking of joint venture car companies respectively, but their market decline exceeded that of most joint venture car companies.
According to the China Association of Automobile Manufacturers, from January to October 2021, FAW-Volkswagen sales were 1.4447 million units, down 12.49% year-on-year, and SAIC Volkswagen sales were 970,400 units, down 18.2% year-on-year. In contrast, China's total passenger car sales increased by 8.8% year-on-year during the same period, BMW Brilliance increased by 17.17%, FAW Toyota increased by 5.53%, and GAC Toyota increased by 4.72%.
In July, Diess publicly criticized China's performance, saying Volkswagen must change its approach to selling electric vehicles in China to deal with its poor sales in the world's largest electric vehicle market.
Feng Sihan said that including heating systems and air conditioning systems, there is a shortage of 3-5 semiconductor parts supply for the ID. family of pure electric models, because these parts are unique to pure electric vehicles and cannot be interchanged with similar parts of fuel vehicles, thus affecting automobile production and causing sales damage.
Against the backdrop of poor performance in the Chinese market, China's number one Feng Sihan announced his departure next year in mid-November. He explained this as the principle and tradition of the Volkswagen Group: when a manager has been in a job or in a place for many years, it needs to make adjustments and changes, and although managers can gain more and more experience in the local market, they will lack fresh perspective.
Feng Sihan took charge of China in early 2019, a year that became a watershed for Volkswagen's performance in China. Previously, sales in 2017, 2018 and 2019 were 4.18 million, 4.2 million and 4.23 million, respectively, continuing to hit a record high, accounting for about 40% of global sales; by 2020, it fell to 3.85 million units, down 9.1% in the same period, outperforming 6.8% of the market; affected by the lack of cores, the performance of 2021 was also inferior to 2020.
"Finance" reporter learned from the Volkswagen Group that the chip shortage is expected to continue in 2022. In order to reverse the decline, the group will give more priority to the Chinese market in the distribution of chip supply, and then it is expected to rebound in 2022 and return to or even surpass the level of 2020.
Electric products have not been successfully copied in China
If the overall decline in sales can also be blamed on the epidemic and chip shortages, Volkswagen's electrification strategy in China is a more noteworthy issue.
After landing in the Chinese market in March 2021, the ID. series of electric vehicles, which Volkswagen has high hopes for, is still struggling to climb.
The success of the Volkswagen ID. series in capturing European consumers has not been replicated in China. Take the Volkswagen ID.3, for example, which was launched in Europe in 2020 and has since been at the top of the electric vehicle sales list. According to the statistics of car data platform Carsalesbase, from January to August 2021, Volkswagen's ID.3 and ID.4 sales in Europe were 45,194 and 31,977 units, respectively, once occupying the top spot in the monthly sales of electric vehicles in Europe.
But after its launch in China on October 22, the ID.3 sold more than 1,000 units in October, compared with 2,646 units in november, the first full sales month. This A+ class electric vehicle that pushed Tesla in Europe did not quickly become a hit like the Beetle, Polo, Passat, Tiguan and other models.
The ID.3 starts at 159,900 yuan and has a range of 430 kilometers. The sales staff of a 4S store of SAIC Volkswagen told the "Finance" reporter that this small car owner is cost-effective and suitable for urban transportation, and the sales in China are not as good as the ID.4 and ID.6 with larger space in the series.
Ferdinand Dudenhffer, director of the Duisburg Automotive Research Center (CAR) in Germany, told Caijing that the sales performance of the ID. series in Central Europe and Europe is different, after all, the competition in China's pure electric SUV market is much greater than that in Europe. Many Chinese car companies such as Weilai have launched pure electric SUV models, and there are many more models in the Chinese market than in Europe, so of course, the Chinese market is more difficult than the European market.
According to consultancy AlixPartners, there are currently about 330 all-electric or hybrid models on sale in the world, up from just 86 five years ago. By 2025, with the release of a series of new models, this number will further swell to more than 500 models.
Some people believe that the sales channel of the ID. series is also an important reason. Although the two major joint venture car companies in the north and south of Volkswagen already have huge sales networks in China, the Volkswagen ID. series has not completely adopted the existing channels.
"Finance" reporter learned from SAIC Volkswagen that Volkswagen ID. products use the agency marketing model, and by November this year, 716 agents have been expanded across the country, covering first-, second- and third-tier cities. ID. Store (X) has opened more than 40 stores in key cities in China, including Beijing, Shanghai, Shenzhen, Chongqing, Tianjin, Chengdu, Hangzhou, Wuhan, Changsha, Suzhou and other cities.
For example, there are more than 30 authorized dealers of SAIC Volkswagen in Beijing, but only 17 can sell ID. series models. This is because the sales of the ID. series models require separate distribution rights, only dealers with higher ratings and sales volumes can obtain distribution rights, and saic-Volkswagen and ID. series sales are also independent.
In this regard, Feng Sihan explained that the introduction of the agency model in the ID. series in the Chinese market is because car companies and consumers can establish direct communication channels, maintain price stability, and bring higher profit margins to dealers.
"The best-selling models in foreign countries may not sell well in China, consumers are becoming more and more mature, and China is even leading the world in the field of intelligent networking, so in these aspects, car companies should pay more attention to consumer demands." Zhang Junyi, managing partner of Oliver Yvrux Consulting, told Caijing reporters.
2025, beyond Tesla?
For a company as large as Volkswagen, the ups and downs of the market reaction are oversized, and how to twist the huge body towards the future of electrification is more critical.
"For the first time in history, we're investing more than half of our total spending, or 89 billion euros, in the technology of the future," Dies said. "More than half of the investment will go to electric mobility, totaling €52 billion, more than 50 percent more than the previous round of planning; €30 billion in digitalization and autonomous driving, a 10 percent increase over the previous round; and the remaining less than €8 billion to support the development of hybrid technology."
This also reflects volkswagen's latest layout of the "NEW AUTO" strategy. In the strategy released in July this year, Volkswagen laid out its product brands, luxury brands, sports car brands and technology platforms: including hardware platform SSP, energy companies focusing on battery and charging technologies, planned software stacks, operating system VW.OS, and ADAS (Intelligent Driver Assistance System).
Volkswagen also proposed that by 2030, nearly 40 million cars of volkswagen group brands should be equipped with self-developed software systems; in 2030, software-related sales are expected to reach 1.2 trillion euros, which is about one-third higher than the estimated sales of pure electric vehicles and fuel vehicles combined.
Another high-profile transformation project is Trinity, a name derived from the Christian concept of the "Trinity." "Trinity, a revolutionary project of the Volkswagen Group, will open a new chapter in full electrification and L4 autonomous driving in 2026." Dees said. After the launch of the Trinity, it will become Volkswagen's pure electric flagship sedan, claiming to be directly benchmarked against Tesla.
According to the predictions of bernstein, IHS and EV-Volumes for several major car companies, Volkswagen is the only traditional automaker that hopes to approach or even surpass Tesla in electric vehicle production around 2024.
Some people believe that Diess has always been the only current CEO of the car company to take Tesla seriously as an opponent. In Dudenhof's view, all of Volkswagen's major investments today are based on the strategy specified by Diess. He initiated the largest restructuring and transformation in Volkswagen's history and led Volkswagen out of the darkness of the past "Dieselgate".
Dees invited Tesla CEO Elon Musk to talk to executives in October and publicly pointed out that volkswagen takes three times as long to produce an electric car as Tesla — Tesla can build an electric car in 10 hours, compared to 30 hours it currently takes.
Volkswagen has set a goal: to surpass Tesla by 2025 at the latest and become the global market leader in electric vehicles.
Volkswagen dares to release the "harsh words" that surpass Tesla, which is undoubtedly the stage victory achieved by the European market to provide confidence. According to EV Sales' 2020 European new energy vehicle sales rankings, Volkswagen sold 126059 units, compared with 87,642 Teslas.
So the performance of the Chinese market is crucial. Zhang Junyi told the "Finance" reporter that the public also has a choice, that is, for the Chinese market, the development of more intelligent and networked products. This means that it must increase China's local research and development strength, which is not only a technical problem, but also a management structure problem.
The centenary public is facing a historic critical moment. After rationalizing the personnel and organizational structure in stages, with a huge investment of 89 billion euros, Volkswagen will be more responsive to the fierce competition between new energy vehicles and the Chinese market.
"The most critical leadership of this generation of automotive leaders is whether they can do a good job of change management, whether they can adapt to the gradual decline in sales of products based on old technologies and develop new technologies." Dees said this to the "Finance" reporter. However, there will not be much time left for him to prove.