VW Sticks to $24.2 Billion China Spending Plan Amid Cost Cuts

  • Investments to be made together with joint venture partners
  • VW targets Chinese production capacity of 5 million cars

Volkswagen AG will shield its five-year, 22 billion-euro ($24.2 billion) expansion plan in China from cost cuts, underscoring the importance of its largest market to stem the fallout of the diesel-emissions manipulation scandal.

This year and next, VW is pushing to update about 70 percent of the vehicles it sells in China and introduce more than 30 models to the market. The company is aiming to boost its production capacity in China from last year’s 3 million cars to at least 5 million vehicles.

The carmaker needs growth in China to at least partly offset the towering cost of recalling as many as 11 million diesel cars worldwide. Volkswagen set aside 6.7 billion euros for the recalls in the third quarter, acknowledging this won’t be enough. Analysts’ estimates for the total price tag, including fines and legal costs, range from about 20 billion euros to as much as 78 billion euros.

"We continue to be committed to our investment plans in China, including our capacity goal," Larissa Braun, a spokeswoman for VW’s Chinese business, said Friday in an e-mailed response to questions. The Wolfsburg, Germany-based manufacturer will make the investments together with joint venture partners SAIC Motor Corp. and FAW Car Co.

Merkel’s Trip

The expansion comes even as the Chinese economy slows and many cities consider restricting car purchases to fight traffic jams and pollution. The market is such a priority that VW’s new Chief Executive Officer Matthias Mueller made the country his first major trip destination as CEO, joining German chancellor Angela Merkel on a trade mission this week.

The introduction of a new budget-car brand in China 2018 will also move forward as planned, Chief Financial Officer Frank Witter told analysts on a conference call Wednesday.

Volkswagen’s diesel recall will affect just 1,950 cars in China. The vast majority of its sales there are gasoline-powered vehicles.

Elsewhere, Volkswagen is looking to cut costs in the wake of the scandal. It’s scaling back annual spending at the namesake VW passenger-car brand by 1 billion euros, and Mueller has said that every model across the group will be analyzed for its contribution to profits.

Watch Next: The Long Rise and Rapid Fall of Volkswagen

The Long Rise and Rapid Fall of Volkswagen
Before it's here, it's on the Bloomberg Terminal.
LEARN MORE