VW Warns of Plunge in China Industry Sales If Tax Cut Lapses

Updated on
  • Tax cut for purchases of smaller-engine models boosts demand
  • Volkswagen Group posted record first-half deliveries in China

Volkswagen AG said industrywide demand in China will plunge if a tax cut due to expire at the end of the year is allowed to lapse.

The German automaker is in talks with both the government and the China Association of Automobile Manufacturers to find out whether the tax cut will be extended, said Volkswagen China chief Jochem Heizmann. Volkswagen Group delivered a record 1.86 million vehicles in the first half in China and Hong Kong, after the government cut the tax on purchases of models with smaller engines to 5 percent from 10 percent.

“If the government really stays on their present decision that this will sharply end at the end of this year, you can expect a big negative impact on the first quarter next year,” Heizmann, who’s a member of Volkswagen’s board, told reporters Wednesday in Beijing.

China has been a bright spot for Volkswagen as it’s been embroiled in a global crisis related to using cheat devices to meet diesel emissions standards. The automaker sells few diesel models in China because the government discourages use of the fuel, with the exception of commercial vehicles. The state-backed auto association said in June it was lobbying the government to make the tax cut on smaller-engine vehicles permanent.

Heizmann said Volkswagen will stick to its 4 billion euro ($4.5 billion) investment plan for China and introduce a larger sport utility vehicle model at the end of this year. Volkswagen also plans a smaller, less expensive SUV offering in the coming years. The company needs to sell more electric vehicles in order to meet China’s fuel-economy targets, he said.

Profitability is normalizing for Volkswagen in China amid rising competition, Heizmann said.