On the eve of new energy vehicle deliveries, Volkswagen is "calculating" every day.
"Our cost optimization work is almost advancing on a weekly basis," said an insider from Volkswagen China. Having worked at Volkswagen for over 20 years, he has never participated in so many product seminar meetings within a single year.
The third - quarter financial report released by the Volkswagen Group shows that the group's performance has not yet escaped the downward trajectory. However, in China, the Volkswagen Group is increasing its investment. On November 5th, it disclosed two new investment trends, which has left the outside world more puzzled: Can the Volkswagen Group's continuous investment in China achieve the expected returns?
"Volkswagen Group (China) has a solid financial foundation and is actively transforming for the future. We will continue to promote local innovation and efficient operations," replied Patrick Heinecke, the Chief Financial Officer of Volkswagen Group (China), to a reporter from Economic Observer. Patrick Heinecke took up his position in China in August 2024, in charge of Volkswagen China's "purse strings." This position is crucial because Volkswagen has invested 50 billion yuan in transformation in China. Whether the Chinese market can build a sustainable profit model is related to the success or failure of Volkswagen's global transformation.
Although Patrick Heinecke's reply sounds rather "official," the reporter learned that Volkswagen China has been busy "calculating accounts." After more than three years of investment layout and deduction, the "financial modeling" for the transformation to new energy is almost completed, and the corresponding strategic goals have also entered the implementation stage.
Volkswagen China's goals include: in terms of sales volume, by 2026, with the launch of more than 20 new energy vehicles, the proportion of new energy vehicle sales will increase from the current 5% to double - digit percentages; in terms of new energy vehicle profitability, from 2025 to 2026, as a transitional stage for transformation, it is still impossible to achieve the same profit margin between fuel vehicles and new energy vehicles. It is expected to achieve this in the later stage of the planning cycle (the end time of the cycle is not disclosed, most likely in 2030); in terms of joint - venture profit contribution, it will rebound to 2 billion euros in 2027 and reach 3 billion euros in 2030 (including the profit of Volkswagen Anhui); in terms of cost, compared with the previous global platform, the current cost has been reduced by 40%, and a 50% cost reduction will be achieved in the long term.
"Calculating the accounts clearly" is the most important task for the Volkswagen China team at present. In 2025, Volkswagen announced that it would enter the new energy vehicle delivery stage in China, and the profit - bearing capacity of Volkswagen China has attracted much attention. To meet the challenges, the Volkswagen China management team has entered a rhythm of intensively conducting product seminar meetings, with all employees participating in the analysis of cost details and price prediction. "Our cost optimization work is almost advancing on a weekly basis," said an insider from Volkswagen China. Having worked at Volkswagen for over 20 years, he has never participated in so many product seminar meetings within a single year. "Delivery is really the beginning of the challenge," for Volkswagen China, this is the real start of becoming a new energy vehicle enterprise.
The performance has not yet hit bottom
Although the Volkswagen Group warned in the release of its 2024 financial report at the beginning of the year that its performance would continue to decline in the next two years, the losses in the third quarter still shocked the industry. However, as a German automotive industry insider said in an interview with local media, the decline of the German automotive industry is not news. The important thing is whether a solution can be found.
The financial report shows that the Volkswagen Group is entering a "transitional transformation model" similar to that in China: the more new energy vehicles are sold, the more the profit decreases. "In the first nine months of this year, we saw a mixed situation. On the one hand, our product offensive is paying off: in Europe, one in every four electric vehicles comes from the Volkswagen Group. On the other hand, the financial performance has weakened significantly compared with the same period last year," said Arno Antlitz, the Chief Financial Officer and Chief Operating Officer of the Volkswagen Group. The weakening performance is due to the ramp - up of production capacity of electric vehicles with lower profit margins. In addition, there were 7.5 billion euros in expenses, mainly from increased tariffs, adjustments to Porsche's product strategy, and impairment of Porsche's goodwill.
Excluding the factors of new tariffs from the United States and Porsche's restructuring, how to improve the profit margin of new energy vehicles is the key to determining when the Volkswagen Group's performance will hit bottom and rebound. In the Chinese market, this issue is even more urgent.
In the 2024 financial report, the Volkswagen Group disclosed the investment income curve from its joint - ventures in China, which decreased from 2.6 billion euros in 2023 to 1.7 billion euros in 2024, and it is expected that the profit will further decline to 500 million - 1 billion euros in 2025. Regarding the performance in 2026, the Volkswagen Group set it as "unassessable." This is because more than 20 new energy vehicles will be launched in the Chinese market in this year, and the Volkswagen Group predicts that the price war in China will continue.
Volkswagen China admitted that although the sales volume of new energy vehicles will increase sharply, their volume base is still smaller than that of fuel vehicles, and the profit margin cannot be improved through economies of scale. Moreover, Volkswagen still needs to absorb a large amount of R & D expenses and investment - related expenditures. Therefore, its profitability will definitely be affected.
However, this impact is not "loss," but a gap in the profit level compared with the fuel vehicle business, and it varies by market segment. Volkswagen believes that the competition in the A - class vehicle market is more intense than that in the more profitable B - and C - class vehicle markets.
Through sales volume calculations of its joint - ventures, Volkswagen initially estimates that the profit contribution of its joint - ventures will rebound to 2 billion euros in 2027. Before that, Volkswagen needs to face the challenge of the profit decline hitting bottom. It is worth noting that the Volkswagen Group has deduced a longer - term financial goal, that is, the profit of the joint - ventures belonging to Volkswagen China will reach 3 billion euros in 2030, which already includes the contribution from the new joint - venture Volkswagen Anhui.
Repeated financial deductions
In the past year, Patrick Heinecke has calculated the transformation accounts for the Chinese business many times. However, the changes in the Chinese market determine that Volkswagen's financial modeling needs to be updated constantly. This uncertainty of investment income is Volkswagen's greatest sense of crisis in China, and optimizing costs is a direct way to resolve this crisis.
In the deduction of the new financial model, ensuring the profitability of fuel vehicles and making the profit margin of new energy vehicles catch up with that of fuel vehicles as soon as possible are the main ways to resolve the crisis. A reporter from Economic Observer learned from inside Volkswagen China that the once well - funded multinational company is now "haggling" over every unnecessary cost.
For the Volkswagen China management team, the most important thing at present is to predict the price trends of all market segments and then conduct product seminars. At the product seminars, members of the Volkswagen China management board will analyze every cost detail of new vehicles with joint - venture partners and suppliers to optimize the cost situation of each component. Volkswagen China predicts that the market competition will still be very fierce, with more than 100 brands. The price level will still decline gradually and stabilize in the medium term, which means that in the short term, Volkswagen must quickly optimize costs and increase market share to ensure profitability.
Product cost is the key to Volkswagen's transformation success or failure. It is reported that through the locally developed CMP platform and CEA electronic and electrical architecture, Volkswagen's development cycle has been shortened to about 24 to 30 months. Moreover, the cost has been reduced by 40% compared with the global platform, and it is currently working towards a 50% cost reduction goal. The lithium - iron - phosphate batteries developed in cooperation with Guoxuan High - tech and the ADAS functions developed in cooperation with Horizon are important supports for Volkswagen's cost reduction. Recently, it has been determined that Guoxuan High - tech's lithium - iron - phosphate batteries will be installed in Volkswagen Anhui's next - generation electric vehicle to increase its cost competitiveness.
In terms of sales, the Volkswagen China management board is also delving into the operational details of upcoming models, using clear KPIs to analyze the entire sales funnel (calculating the customer scale at several stages from complete unfamiliarity with the product to purchase, which is funnel - shaped. This model is used to identify problems specifically and accurately predict performance), from media investment for each model and each market segment to discounts and sales strategies for each model, each market segment, each dealer, and each sales point. Currently, the entire Volkswagen China board's attention is focused on these factors to ensure the efficient use of funds.
It is worth mentioning that the same cost optimization is also carried out for Volkswagen's profit base - the fuel vehicle business. It is reported that after Patrick Heinecke came to China, a very important task is to improve the capital efficiency of the entire China - region business structure, especially in the fuel vehicle field. He optimized a large number of non - core assets, including the supplier structure, hoping to optimize the cost structure and ensure the profitability of the entire fuel vehicle business. Currently, as the scale of the fuel vehicle market continues to shrink, Volkswagen's market share in the Chinese fuel vehicle market has increased year by year to 22%.
It is revealed that in the past two or three years, with the unprecedented emphasis on cost reduction and efficiency improvement, "investor thinking" has been cultivated within Volkswagen China. The entire organization has become accustomed to carefully analyzing investments, streamlining structures, and even actively disposing of assets. An example is that the internal operational efficiency improvement target set by the Volkswagen Group is to increase efficiency by 20% by 2026 compared with 2023, and Volkswagen China has completed this goal one year ahead of schedule.
It is undeniable that behind the cost optimization is the reality that Volkswagen is still in the peak period of transformation investment in China. In the past two weeks, there have been speculations in the industry that Volkswagen's software subsidiary Cariad will abandon self - research and choose an external cooperation path. In response, Volkswagen China said that software is a core technology that must be firmly grasped, and Volkswagen will continue to invest in key technology fields in the Chinese market.
On November 15th, Volkswagen China announced two more investment developments. One is that the cooperation with Horizon will be further expanded, and the two sides will cooperate in the design and R & D of system - on - a - chip (SoC), with an investment of about 200 million US dollars; on the same day, the Porsche China R & D Center in Shanghai was officially opened. This is Porsche's largest R & D center outside Germany. "We hope that our 'in China, for China' local value chain can include various key technologies," Volkswagen China said.
This article is from the WeChat public account "Economic Observer", author: Liu Xiaolin, published by 36Kr with authorization.