Struggles of Germany’s Volkswagen: Miscalculation of EV Strategy a Serious Lesson for Japanese Makers

Editorial

17:29 JST, December 16, 2024

How should carmakers develop their strategies for the transition to electric vehicles?

The poor performance of Germany’s Volkswagen AG can be said to present a serious lesson for Japanese manufacturers.

In December, Volkswagen’s trade union went on a large-scale strike for the first time in six years. The aim was to protest the management’s consideration of whether to close domestic factories for the first time since the automaker’s founding, due to the company’s weak performance.

Tens of thousands of job cuts are also expected, which has rattled German society.

Volkswagen’s struggles appear to be largely due to a miscalculation in its EV strategy.

The company has invested heavily in its goal to have EVs account for half of its global sales by 2030. The German government, which is promoting decarbonization, has also supported this strategy by investing in subsidies for EV car purchases.

However, the Chinese government has supported homegrown vehicles by providing subsidies and other incentives, and Chinese manufacturers have gained control of the supply chain for the key component of storage batteries. These factors have allowed Chinese carmakers to become overwhelmingly cost-competitive.

The Volkswagen Group sells about 9.2 million vehicles a year worldwide, of which the Chinese market accounts for more than 30%. It probably did not foresee that the group would fall behind emerging Chinese automakers.

Furthermore, the German government ended subsidies for EV purchases last December, resulting in higher purchase prices for consumers, which led to a sharp decline in the number of EVs sold in the country.

In devising an EV strategy, it is important to understand that the speed at which EVs come into wide use differs according to the circumstances in each country.

China has seen rapid growth in the use of EVs, which has been promoted as a national policy. In contrast, EV sales are slowing in major developed countries for reasons such as their short driving range and relatively high cost compared to gas-powered vehicles.

For Japan, where auto manufacturing is a key industry, Volkswagen’s poor performance serves as an important lesson. Misjudging consumer needs will have a serious negative impact on the business situation. It is necessary to closely analyze market trends in each country and revise investment plans.

From a medium- to long-term perspective, moves toward decarbonization will not stop, and the shift to EVs, which do not emit carbon dioxide while running, will have to proceed. If Chinese automakers are allowed to dominate the market, the impact on the Japanese economy will be substantial.

Honda Motor Co. and Nissan Motor Co. have decided to fully collaborate in EV production, with strategies to deal with China and other markets in mind. Toyota Motor Corp., Honda and Nissan have reportedly agreed to cooperate in developing software to control vehicle functions.

The development of storage batteries, which are integral to the performance of EVs, and automated driving software requires a huge amount of money. Cost-cutting measures through corporate alliances and cooperative ties will be the key to strengthening competitiveness.

(From The Yomiuri Shimbun, Dec. 16, 2024)