China EVs & More

China EVs & More MAX Episode #4 (ME) - Dr Stephan Wöllenstein, Volkswagen Group China CEO

March 08, 2022 Tu Le & Lei Xing
China EVs & More
China EVs & More MAX Episode #4 (ME) - Dr Stephan Wöllenstein, Volkswagen Group China CEO
Show Notes Transcript

In this MAX episode, Lei gets the chance to ask Dr. Wöllenstein for his take on the challenging 2021 VW Group had in China and what his outlook for the company is for 2022 and beyond.

In particular, Dr. Wöllenstein gives us his take on how the ID. Series will perform here in China in 2022 and beyond, what he thinks of his Chinese competitors, and his outlook on expanding VW Group R&D in China. 

He also talks about how "China has finally made it" in terms of the domestic Chinese players finally catching up to (and even surpassing!) the foreign automakers in terms of market share and innovation, and that foreign automakers need to treat China as a "two-way street" (both as a market and innovation powerhouse) rather than a "one-way street" many years before when they simply imported technologies and anything would sell on the the market.

This might be one of the last extended interviews that Dr. Wöllenstein gives about the China market before he heads back to Germany in August so don't miss out on his thoughts!

China EVs & More MAX Episdoe #4 
Dr. Stephan Wöllenstein, CEO of Volkswagen Group China

Tu Le:
Hi everyone, Tu Le here, one-half of the China EVs & More duo. Lei and I are always thinking about different ways to bring you, our audience, relevant and compelling content about the China EV, AV and mobility sectors. Especially now that several companies that we’ve tracked over the last 50+ episodes have become global phenomenon. 

China EVs & More MAX is where we bring you special content, in the form of conversations we have with special guests from those sectors. 

In this episode, we talk to Dr. Stephan Wöllenstein, CEO of Volkswagen Group China. 

Having just unveiled the much-anticipated ID. BUZZ and with the Trinity representing its next generation of EVs on the horizon, Europe’s largest automaker is in the midst of a massive transformation from a traditional legacy automaker to a software-driven e-mobility provider. It is also facing strong headwinds in arguably its most important, and largest market in the world, for that matter: China. Volkswagen Group was one of the pioneering automakers in China’s early days with iconic nameplates like the Santana and Jetta. But now, it’s not only playing catch up in the new energy vehicle game, it is also having to navigate the ongoing chip supply shortage and sporadic outbreaks of COVID-19 cases here in China which significantly impacted its market performance here, with Group-wide sales down 14% to 3.3 million units in 2021. It prompted Dr. Wöllenstein to describe 2021 as “one of the most challenging years in the history of the company here.” 

Lei Xing:
This is your co-host Lei Xing. 

2021 was certainly a tough year for Volkswagen Group in China. The core Volkswagen brand took most of the brunt as its MQB-based models were overproportionately affected by the chip shortage, and it also had to confront a new reality: homegrown Chinese brands that used to be the ones chasing from behind have now either caught up or even surpassed it in many aspects of the competition, especially in the NEV game. Foreign automakers like Volkswagen, though still ahead as a whole in terms of market share, are needing to adapt like never before.

So I asked Dr. Wöllenstein about his own observations of how the Chinese brands are wining so far in the NEV game, what Volkswagen is doing to address competition and step up its own NEV game (including working with interesting local Chinese startups), and how the industry has changed over his tenue in China spanning over a dozen years that will come to an end in August when Volkswagen brand CEO Ralf Branstätter succeeds him. 

I’ve spoken to Dr. Wöllenstein in person on numerous occasions on and off the record since 2017 well before he was appointed to the Group China CEO position, and he’s always been frank, patient, and open. It was no different this time. 

Here is my conversation with Dr. Wöllenstein.


 Lei Xing: 
So thank you very much for your time. I guess you’ve already had a tough year. In the middle of the year, I wrote an article about what went on with the ID. series, that it was kind of a crossing the river by feeling the stones, sort of. Where do you feel you are? Do you think you’ve felt enough stones that you are actually on a good trajectory or are there still some issues?


 Dr. Wöllenstein: 
There are still some issues, frankly, because as I also stated earlier, we started effectively selling ID. cars, as you probably have recognized at the end of March last year. So it was not even a full year, but we started end of March when more or less simultaneously both ID.4 models from FAW-Volkswagen and SAIC Volkswagen became available for purchase and delivery to customers. 

So of course, with a traditional automaker as us getting into the market, which is clearly yet very much dominated by startup companies who have only an NEV profile, of course it needed us some time in order to get us also known as a competent NEV player in this field. 

More or less on a month-on- month basis, we were able to double the sales. Fortunately enough, we had been in, even if it was a bumpy ride, I have to say, over the last 3 to 4 years, we were also sitting together with our Chinese partners. We were also discussing some fundamental changes on the sales model for the ID. cars. As you probably know, the ID. cars, unlike our ICE ones, are sold via the agency model, which was not an overnight decision, which was prepared for many years, talking to the Chinese colleagues, convincing them about the benefits of going into the agency model.

For this new generation, this completely different kind of cars, which was good. We also early enough, decided that we probably do need to enhance a bit our retail presence. We had always in mind to have a kind of ID.-exclusive flagship stores. In the beginning, just to unveil, we had in mind maybe a number of around 40 or 50. But what we figured out,  even in the time when you are already stuck in the U.S., that in China it's rapidly changing, also the consumer behavior, in particular, on NEV customers. You know that Xpeng and NIO, in particular, those players, they went, as they have no network at all, they went in particular into a different retail mode where they went into high frequent shopping malls to offer their car to display for their customers. So our kind of flagship concept was reflecting this already at an early stage, but we figured out that customers like this sales mode in particular, so together with our two joint ventures, we have massively increased the ramp-up speed. And now we talk about 120 roughly locations that are in the major NEV cities in China already in high frequent downtown areas. We probably by the middle of the year will have about 200. So it's similar to the network that Tesla has across the country. So we have accelerated something that we had always had in mind, but we were observing that this is becoming a new trend which needs to be further accelerated and cannot be kept only on a small flagship store side.

So I would say structurally we had prepared a lot, we were very flexible in terms of also adjusting our strategy, hence more or less on a month-to-month basis, we were doubling our sales with numbers peaking up in September to 13,000-14,000 units, very well on the way to really go for the hot Q4 as you know when people fear that subsidies are running out, and you should better buy your car now. So we were preparing for monthly rates of 18,000-20,000 units. Then, unfortunately, the global semiconductor problem also hit ID. sales. It was mainly five electronic parts, which made it impossible for us to build complete cars. Stocks were, anyway, very slim, so we could not even breathe out of stock from the ID.s. So if you look on our Q4 sales, we were kind of stagnating, because we were simply not able to build cars. 

On top of it, we saw something that is in the West, probably not that much recognized, that also because of the very strict COVID measures of the Chinese government, we saw some regional lockdowns. Tianjin faced a lockdown, Ningbo was a particular topic in December when you probably also have noticed that Ningbo was kind of in lockdown, including a number of substantial suppliers for SAIC Volkswagen, as they have a production base in Ningbo, and of course typically their supplier base is very much in the Yangtze River Delta, including Ningbo. So we lost several thousand units of production, ICE and ID., unfortunately. So, therefore, also in December, we were double hit, global semiconductor shortage affecting ID.s plus some local effects like Ningbo and later Tianjin. 

So generally, if you look at our ID. sales numbers, I'm not happy at all because we were far below the 10,000 number simply because we have no cars. So we hope now production is kicking back in. We are now able to build up what we have nicely established until September to come back to a sales rhythm that allows us to go for numbers like 130,000-15,000 units.

And when the market is getting stronger, typically in the NEV part as you know towards the second half of the year that we also come back to the sales rhythm that we initially more or less have already established last year with sales rates of 15,000-20,000 units per month. Overall, hopefully, this will lead to a situation that we will massively increase our ID. sales. Last year, it was in total with 9 months about 70,000 units. 

It doesn’t make sense to tell you our sales plan because it all depends on the supplies which are still a bit vague. But my sincere hope is that we will certainly be able to double the sales on ID. models come this year, maybe even more.

As we are really clear, staying here on focus, we will also show in Beijing, a kind of how we will further expand our pure battery electric vehicle portfolio based on the MEB platform. This year we will not introduce another car. We have already five on sale. From next year on, we will bring more or less every year, at least one additional new model on the MEB base, including certainly from the end of 2023 onwards in terms of production, and then on sales in 2024 the models coming out of Volkswagen Anhui. 

So, therefore, we are playing hot on our NEV ramp up and hoping that the semiconductors will not affect us that massive as in 2021. We will certainly see a three-digit increase in ID. sales also this year.

Lei Xing:
We talked about production, we talked about channels, but I think the jist of the matter is the products themselves. So you have done 70,000 units, but there's still a bit of, five ID. series models. And you don't like this comparison, let's say a Li Auto One selling with one model. I mean, it's not a fair comparison, but my question is, after 70,000 units, what kind of feedback have you been getting from the customers? Where do you need to improve on the product side? Because I think you still face a bit of an issue on the products themselves. Don't you agree?

Dr. Wöllenstein:
Yes and no. I would say if you realy look at the NEV market 2021, and certainly also to an extent this year, in the coming years, the NEV market is still a bit of a strange animal. If you look at the structure of the market, and I have a slide in front of me which unfortunately I cannot share. The price-volume distribution of the NEV market is completely different than from what we know from the ICE market, which is still the dominant force in China, and it reflects more or less buying power and buying habits of Chinese consumers. If you look into this market, you see the NEV market peaking at two extremes, where the normal market is relatively falling down. One is the entry area, which is counting for almost 40% of all NEVs that you find in the statistics, which is effectively all BEVs, which are the famous mini-BEVs from our friends from SAIC with their Wuling brand. So cars that are sold under RMB60,000. It's more or less the evolutionary step from an electric two-wheeler into an electric four-wheeler, which is making up about 40% of the market.

And then the model that you're referring to are the other peak, the other end of the market, we see an artificial high of about almost 20% of all NEV sold beyond RMB250,000. So this is as you know, it's already premium market territory from a price point. So normally Chinese customers at RMB250,000 and above are buying Mercedes, BMW, Audi, Cadillac, Volvo, you name it.

So we see a habit and the cars that you are mentioning are really people who have the buying power and the buying willingness to trade at premium market prices and certainly, their level of expectation of why to buy an electric car and not to buy a 3 Series BMW or Audi A4, or Audi A6 is certinaly that they want to make a statement. 

We did a lot of in-depth interviews with people who considered our cars, but finally rejected, also talked to people who bought Teslas, Xpengs, BYDs or whatever. And clearly, the expectation of these very affluent customers is different from the mainstream Chinese, because of deciding with this buying power to go for a non-traditional brand. In an NEV mode, they want to make a statement of having something radically different and advanced experience compared to the mainstream brands and mainstream cars on offer, therefore they pay very high interest in futuristic design as they call it, and of course, they are into the latest gadgets in terms of perceived innovation. 

And this has also rapidly changed over the last 3 to 4 years. So where it was about 3 years ago, it was all about what we call connectivity. So the car is permanently connected to the internet, you have some services, you can operate apps out of the car. It is now turning, in the last 18 months I would say, massively also into features like automated driving. So typically Level 2+ ones with all the downsides, the cases that Tesla and NIO had in this respect, but a lot of brands are experimenting and offering hardware side at least Level 3 capabilities, even if they are limited in terms of use. But it is a brand proposition that is very much circling around futuristic design and extreme innovation, which is understandable because it needs to be justified why they are trading at such high price points. 

Volkswagen, whatsoever, we are in a positive trap so to say because Volkswagen is always about a very well-balanced package. So for us, it's also about safety and quality. It's about daily usability, and if you really talk to customers, they acknowledge, even if they buy, for instance, an Xpeng P7, they say that your seats are better, your driving ability is certainly better, your range nomination is more accurate than I find it on the Chinese. I see all the traditional values from Volkswagen, and I say they are definitely better than my startup car. But I wanted to have a car that is looking much more progressive and which is offering the latest technical gadgets. And this is not what is available with Volkswagen. Yeah, because on Volkswagen we are like on a Tiguan, Passat, Magotan, Sagitar, we go for the very well-balanced package.


 Certainly, we have all these features in different forms also in our cars. If you look at the design of the ID. cars, external and internal, they look much different than a combustion engine. We have also Level 2 driving functions in the car or travel assist. If I drive it in the evening here on third or fourth-ring road in Beijing, it can drive almost autonomously, the only point is because of legal obligation, every 10 seconds the car is alarming me that I please take over the steering wheel. Otherwise, I could be driven from office to home at least on the ring roads by the car itself.

So we have a lot of features in, but not to the extreme as our Chinese customers that are currently buying in these price ranges are requesting. What we see, however, that as the market is now growing, there will be a clear trend that the price-volume distribution in the NEV market will of course narrow to the one that we know in the so-called traditional remaining rest of the market, which means that people are also going to buy somewhere between price points RMB100,000 – 250,000 which is normally the home territory of the Volkswagen brand, and people going into this often are also families. They of course regard higher daily usability, safety is in particular, a hot topic and you know the ID. cars have performed extremely well on safety-related features. We had been the best-tested car in CARC, also from an institute, a direct car-to-car crash with a Tesla, where the ID. 6 was also showing extremely strong performance. So on these traditional values that come into play when you go into this price territory, we see that more and more customers are also attracted by the Volkswagen proposition as they are also in the typical ICE world. On some cars like ID.3, we see, for instance, that young females over-proportionally go into this car, because for them, it seems to be a fancy, attractive alternative also to be driven in an electric manner, in a pretty compact hence a very sophisticated car.

So I would say the future is working for us. In the current world, for the reasons that I try to explain, yes, it's probably not the rapid start into the No. 1 position. But let's say as a market is going massively into a direction that NEV becomes a second new normal in China, we will also see a much more normal pattern and much more distribution of consumer groups looking for cars that are similar to what we know from our ICE cars.

Lei Xing:
Yeah, I certainly hope Volkswagen finds kind of its mojo back.

Dr. Wöllenstein:
We are innovating. Don’t forget we have our innovation road map for both ICEs and NEVs, which will also be the key focus of our activities and where from next year on, you will also see very nice features kicking in and also this year, we will be as we stated in Europe also in China, we will be able to do over-the-air updates, in terms of not only back-fixing but upgrades and updates of our software. We have currently the latest software version in internal testing and are prepared to release it pretty soon on the newly produced cars, and then of course we will invite our customers with existing ID.s during the course of the first half of this year to come and get the latest software update. And from there on, we will be able to, like other brands, we will also be able to update our car. 

So there's also a lot of stuff happening behind the scenes, which will further improve also the technology aspect of our cars. But I would say Volkswagen will never, because it doesn't fit our overall brand proposition, we will never go to this extreme in terms of bringing the latest possible innovations into our car, sometimes only semi proven at the edge of what is legally possible, not meaning, of course, that we we will not also go heavy into the direction of automative driving.

Lei Xing:
Yeah, I would say patience is the virtue, right? So let’s switch gears a little bit. We talk about, I describe it as a dumbell effect: the Wuling (small EVs) on one hand and the premium market on the other hand, and the handle part is where Volkswagen is at, right? And then your other two brands, which are having very interesting market performance, Škoda and JETTA are going in completely different directions. Can you explain what's going on? Why is Škoda, it did 300,000 units, just 5 or 6 years ago, now it's doing much less than JETTA. Do you think there's some issue here that you're confronting positioning-wise? What can you say?

Dr. Wöllenstein:
Yeah, it's certainly an interesting observation. First of all, let's start with the positive side. I mean we are very pleased that JETTA really creates more momentum, we have also seen in January,  one of the highest-ever monthly sales numbers with more than 20,000 units being sold for JETTA in January. So it was always meant to be a kind of, not a cheap brand, but a kind of an entry brand, bringing a lot of benefits that people know from the Volkswagen brand at a more affordable price point, not with the latest level of technology and not the latest level of refinement, what we were able to, and willing to offer on a Volkswagen.

We're always aiming to have this car serving for entry customers or first-time buyers in China in probably less-developed areas. You know we typically have this differentiation between tier-1 to tier-5 cities, and it was always meant that JETTA is particularly focusing on tier-3 to tier-5 areas, which they are doing. So their market share, even in tier-4 or tier-5 cities is double as high as it is on the national average. So it really resonates very well with people in the less affluent areas of China, which are looking into a competent, well-equipped, but reasonably-priced car with a lot of the benefits that they know traditionally also from the Volkswagen brand. So JETTA works pretty well. We are currently also on the way to bringing the next generation of cars for JETTA in order to continue this momentum. 

Škoda, however, if you recall, in the beginning, I was in China when Škoda was launched, which was my SAIC Volkswagen times, back in 2005 or 2006 when Škoda was really brought into the Chinese market. At that time, honestly speaking, you could sell anything to Chinese customers that has an international connotation. And therefore Škoda was also very well-perceived. Because like in Europe, it's a very good package between product quality and price point. So Šoda really developed very nicely alongside many other international brands.

What we observe, however, in the last 3 to 4 years, is what is kind of natural, a massive shakeout and a massive consolidation on branding in China. We see if I look for a second and we leave the NEV market for a second aside, what we observe in the traditional ICE market is very much a consolidation on brands. There are a number of few Chinese brands who seem to establish themselves, also able to perform up to top ten positions in the Chinese market. And we see a bunch of international brands, it's mainly, if we are honest, it's us, and some Japanese brands who are, let's say, playing within the top five of the Chinese market. And we saw, on the other side, also a kind of a rapid reduction on other very well-known international brands, without naming them specifically.

And I guess as a close observer of the industry, you know whom I'm talking about. Škoda seems to be a bit of a kind of a similar victim. So we are looking very closely at how we can get a sharper image for Škoda, plus, which is probably a magic question that we are currently considering: how shall we deal with Škoda when it comes to electrification? I mean today you see a lot of brands who try like us, Volkswagen, for instance, or Audi to really play in a competent manner in both fields, the NEV market as well as the ICE market.

Also, now Toyota after a long time of sticking to hybridization only is now on the way to go into electrification as well. So, I mean all relevant players, including the Chinese, are trying to really walk on two legs, so to say. The question is really on a brand like Škoda: shall we do the same? Škoda has very attractive models in the NEV field on sale in Europe, which are very well accepted. On the other hand, given as a relatively smaller volume base for Škoda in China, the question is, is it justified from this perspective to electrify Škoda? So, there are a number of questions that we are currently discussing internally to see what a breakthrough strategy for Škoda looks like. Knowing, however, that Škoda is working against a general market trend that we see a substantial consolidation of brands.

Lei Xing:
That's a fair answer. Would it be fair to say that for the foreseeable future, your NEV strategy will focus primarily on the VW brand, Audi, Porsche, and not so much on JETTA and Škoda? Would it be fair to say that, in China?

Dr. Wöllenstein:
Yeah, for the time being, it is simply a rationale and the three brands that you have mentioned, I guess have in their respective sector, a substantial position already in the ICE market which also commercially justifies the investment into the NEV. It makes no sense, in particular, for volume brands, such as a Škoda, to consider electrification with import cars. I mean our Porsche does, because they are a pure import brand, whereas Audi and Volkswagen are very much on localization.

Therefore, also electrification is based on local production. If we would do something like this for Škoda, it needs to be on a local basis. And the question is, really we are not able at reasonable price points to offer any electric Škoda on an import basis. This means that we have to carefully judge between the needed investment on one side, compared to the expected volume we can foresee for a Škoda BEV car in China.

So you're probably right that let's say, short-term, at least, we will concentrate our electrification efforts, in particular when we talk about locally produced cars in the set of Volkswagen and Audi. Audi is also going to offer two pure electric vehicles, so BEVs, this year, one from FAW-Volkswagen, one from SAIC Audi. So it will also be interesting to see how Audi is going on with their electrification strategy in China. So it is, for good reasons, currently is a focus on what we are doing on BEVs.

Lei Xing:
Two quick questions, yes or no answers. The goal to sell 1.5 million NEVs in China in 2025, that's still in place?

Dr. Wöllenstein:
Yes, otherwise we would have made wrong decisions on the production capacity.

Lei Xing:
Okay. The other question is, has Volkswagen ever considered investing in a Chinese EV company?

Dr. Wöllenstein:
No, not really, we are currently investing so much in Chinese companies, Gotion for instance, and also JAC with our JAC Volkswagen, I guess we have already the precondition. But even if it is not a yes or no, we have also now extended our partnership scope with other Chinese companies, which is not necessarily always an OEM.

Lei Xing:
Going upstream to the batteries and autonomous driving, I think you shared in the group media interview that you're working with three battery relationships, CATL, Gotion and A123 and as well as the DJI partnership. Why these two companies, A123 with DJI?

Dr. Wöllenstein:
Let's say A123 is pretty simple. We are currently basing all our MEB cars on CATL which is by far the biggest player in the Chinese market, but it was clear that we can’t and shall not base all of our electrifications on one battery supplier alone. So, therefore, we did a strategic investment into Gotion. It was always clear that we do like we do on key components anyway that we are looking for a second supplier. So we requested almost everybody in the Chinese battery market to offer, and in the end, it was also about technical qualification and pricing. And in the end, A123 was selected as a very competent player coming now into play into our small battery cell producer portfolio.

So as you rightfully say this, then, consisting of three suppliers where we can balance a bit of our huge demand. Because demand, as you know, it's about 150 GWh battery cell capacity that we need by the middle of the decade. And this to source simply with only one supplier, it's a bit risky, and it's also stretching them a bit too much. So this is simply a balance and a risk reduction scenario. 

DJI is a funny story. I personally came across DJI in 2016 on a marketing cooperation for Magotan launch. And I was sitting together with Frank and its management team on DJI at a dinner in Shenzhen. And then we were also talking about future plans of DJI and they were telling me that they were considering to expand their scope into automotive.

So we got into talks and we paid them some visits to Shenzhen at a very early stage when they showed us their willingness to go into kind of autonomous driving functions. They are excellent, in terms of sensor integration and on software development also for sensors, based on camera systems, in particular. And so we really formed a project together and we are about to bring come next year, a function also going into our combustion engine vehicles that is a kind of a Level 2+ driving function, very nice, which we are developing together with DJI so we are taking their competence, they are taking us as a big lever into the automotive market in order to form a typical win-win cooperation, which allows us to have a pretty attractive package at a reasonable price to offer reasonable autonomous driving to our customers very soon.

Lei Xing:
Okay, and that they're also doing LiDARs, right? There's a spin-off. So one extra question, do you consider putting LiDARs because a lot of Chinese EV companies are doing that. Do you have that plan?

Dr. Wöllenstein:
Yeah, definitely we have to put LiDARs on when we go into Level 3, Level 4 driving, and this is a bit back to my proposition on the NEV market. I mean currently, we see that a lot of brands are putting the latest possible technologies into the car including LiDARs, which are currently, given the regulation, we see are not really usable because you're not really allowed to drive autonomous.

When we go into Leve 3 and Level 4 autonomous driving, you need LiDARs, you need radar sensors, you need camera systems, you need almost everything. In order to integrate all the signal units, of course, you need high computing power, this is where also a lot of companies are currently working on to get the necessary chipsets in place in order to have computing power in the car, at reasonable energy consumption rates, which is another topic, to really integrate. For us, we try to really have a purpose and a suitable approach.

If you want to do Level 2+ driving functions, it is of course the cheapest possible way to do it with a camera and radar-based systems and not to use LiDARs. They are not absolustely necessary to do a Level 2+ function, and then you are able to do this in a more attractive price proposition to the customers. When you later go into Level 3 and Level 4, you certainly need LiDARs. Volkswagen will also use them, but then the willingness to pay from the customer has to be a different one, or we would have to go into a subscription model that only when autonomous driving up to this level is being used, customers pay for it. But as soon as you go into LiDAR technology, you get expensive.

Lei Xing:
Yeah, in fact I think that's what the Chinese smart EV startups are doing. They have the hardware ready, but you actually have to pay and subscribe to get that function. I think that's what they're doing right now. I think we have gotten all the tough questions out, next one is the crystal ball question. Some predictions of the market scale this year, so last year was, CAAM numbers were 3.5 million, and this year, the lowest predictions of 5 million, the highest 6 million. What is your crystal ball say, and what is Volkswagen Group’s target in terms of how much share you want to take up this year? I know you said doubling of the ID. sales but there are other NEVs, right?

Dr. Wöllenstein:
Yeah, I would say this year it's very much, let’s say a production limitation year. We have to confess, we will most likely not be able to sell all cars that we would be able to sell. If I see how supplies are currently kicking in, we probably cannot be really market or demand-oriented in our supplies. Nevertheless, we will be able to substantially grow. As far as the total market is concerned, I also believe that this year we will see maybe in the order of 4 million-plus NEVs, but still with a substantial high share of the mini-BEVs where we never wanted to be in.

So if you cut at least a third of this market out, then you probably talk about a battery-electric car market which is considered for us to be a relevant one, in the order of maybe 2.7 to 3 million units, where we with the Audi offers and the Volkswagen offers come into play.

Mid-term, we believe that the market will develop better than the government originally predicted. The original government prediction was about 20%. We can see that the market mid of the decade, 2025 or 2026, is probably in the order of 25-30% already, to grow further. But the magic question is,

Lei Xing:
I think you're very conservative.

Dr. Wöllenstein:
I'm not sure, we have asked a number of institutes and a variety of predictions, I have it in front of me. The most optimistic ones are going for 33% share in 2025. The government target was 20% in the beginning, and even the optimistic ones, the long-term end of the decade, 2030 sees about 60% of the market NEVs, the conservative one is again, let's say, government-related authorities with something like 40%. So you can imagine that maybe the truth will be somewhere in the middle, and something that needs to be, considered is Chinese customers are still very sensitive on money. This also explains where Q4 is always a massive effect when the subsidy is going to go to the next lower level. And from next year onwards, there is no longer any subsidy. And you see already that Chinese brands are starting to increase prices because they are not able to absorb any longer subsidy shortfall any longer, because of the cost position.

Lei Xing:
I personally think that the tipping point has gone past us, whereas even without subsidies starting next year, I don't think this will change the consumer behavior of switching to EVs because in a lot of the segments, EVs are on a price parity with ICEs. So that's my personal opinion. So I think this year will be very close to 20% already, if not over.

Dr. Wöllenstein:
Could be. 20% I would not deny. 20% I would not deny.

Lei Xing:
Some lighter questions. What is your advice, I know you still have six more months left, what is your advice to Ralf Brandstätter, when he comes over in the summer? Because he doesn't have your experience of being in China for such a long time, but he is tasked with this important position. What are your advice?

Dr. Wöllenstein:
I give him advice more or less on a weekly basis. We are having phone calls and Skype meetings, at least once a week, the last call was on Sunday, even the second last week that we talked about an hour.

This will probably be the smoothest handover that we have seen in the Group for a long, long time as we are really walking in parallel, as he tries to get into the job as much as possible already from the beginning of this year onwards.

I guess in the end, it's also what is true for the vast majority of other board members. And as well for people like you, I mean behind the invisible curtain of COVID-19, China has massively changed in the last 2-3 years, and the last time that any board member was able to come to China with reasonable effort was Summer 2019. Since Summer 2019, China has dramatically changed in many ways, and you need to be here on China soil in order to figure out. We are sending them, pictures, videos, reports whatsoever. But there is a difference of having having a day by day lively experience versus reading some reports. In the end, that's also what's needed, in the end besides all briefings and discussions, we are doing beforehand for Ralf, to be realy here with his family and start to live in China.

Lei Xing:
Yeah, even the two years I’ve been outside of China, I’ve been gone, I feel like if I were to go back, I don't know whether I’ll be used to it. You see what I’m saying, because you need to be there to experience the fast pace of changes, otherwise you fall behind. That’s what I’m feeling right now. 

Maybe you can reflect on, a bit on, way back when you were at SAIC Volkswagen, then FAW-Volkswagen, Volkswagen brand CEO and then the Group China CEO, what are your, how do you summarize this time? 

Dr. Wöllenstein:
Yeah, what is my summary? I would say in the end, China finally made it. I mean what we are currently seeing is that China gets into, I would say, a normal pattern of who is relevant in this market, and also what position the Chinese market has on a global scale. China is already today by far the largest automotive market, but it was in the past years still characterized by two strange patterns.

It is the only big producing country in the world, where national players play a minor role. Traditionally Chinese brands are only counting, depending on, the up and down swings, somewhere between 30 to 40% of the total market, whereas in all other key markets, Germany, France, the U.S., whatsoever, it's mainly the national players who are kind of dominating, dominating meaning at least doing 50 to 60% of the market. This is now also about to change for China. We see it in the NEV market, and it's certainly over the years to come, it will also find its way into the overall market that not all of the Chinese brands that we see today, but let's say a selection of them will also be permanently in the top ten, maybe even in top five positions in the Chinese market. And the share of indigenous brands and indigenous OEMs on the Chinese total market will be in the order of around 50%, which is then a kind of normality that we observe in the rest of the world.

The second topic is normally such big markets are showing OEMs, manufacturers that are leading the pace in terms of technology. It is certainly true for the German-based market, which is not only the OEMs like Volkswagen, Mercedes, Daimler but also the key German suppliers like Bosch, Conti and so on, ZF, what now see alongside the electrification, alongside the way to autonomous driving that now also China is becoming a leading nation with leading companies in those fields. On batteries, CATL is on a global scale, even as the leading battery cell supplier. We also see companies, including Huawei, for instance, but also some, let's say mid-size startup companies who are starting to play an important global role on autonomous driving. On connectivity-related features also Chinese companies are really coming up. So I see also a kind of economic ecosystem on these new trends that are forming the automotive market of the upcoming decade where China is taking with its companies, a leading position, not the dominant position, only because we still have strong forces in the West, including the U.S. where you are currently based.

But China is certainly leveling out and the political decoupling will certainly fuel this trend, as China is for geo-strategic reasons, also supporting this trend to be a bit more independent from in particular U.S.-based technology. This will also come into play for the automotive market that we see very competent and dominant players in this technology field as well.

So with this, I would say, when I was coming in 2004, we were exporting technology and we were harvesting the big domestic market for the benefit of both sides. We were also bringing production technology, quality technology all into China. We have grown the industry, but it was very much in terms of technology transfer a one-way street. Whereas nowadays alongside our strategy, it's a two way one, we are also further building up on our R&D capabilities in China. We have our CARIAD China, which is rapidly ramping up. We have Volkswagen Anhui which serves also as an R&D hub for our NEV activities. And we will certainly develop here in China technologies that will find their way into the world. So we do what is happening in the industry anyway. 

This is the most remarkable development I have seen in the last 14 years that China has really, you mentioned this on the NEV market, but it's more or less China has reached and surpassed the tipping point, where from more an import market in terms of technology, China is really going into now a very mature stage of also driving global trends.

Lei Xing:
Yeah definitely. The way I would describe it is: the world wakes up to China. 

Dr. Wöllenstein:
Yes.

Lei Xing:
And now I see Volkswagen Anhui is really now the true kinda of a Chinese Volkswagen entity really built from the ground up

Dr. Wöllenstein:
Absolutely.

Lei Xing:
Rather than importing and doing things like before. I guess with that, I think that's it, very great answering for the last question because you've been in China, and you’ve seen these changes. So that’s it for me, from my side. Thank you for your time!

Dr. Wöllenstein:
Well it was a pleasure, my friend!

Lei Xing:
As you have heard from our conversation, Dr. Wöllenstein was pretty candid and addressed the elephants in the room such as issues the ID. series confronted as well as the predicament of the Škoda brand, as well as how it is working with local Chinese players and stepping up its own R&D and sales & marketing game to meet the fast changing needs of Chinese consumer. 

“Know the enemy and know yourself, then you will never lose a battle.” This famous quote from Sun Tzu’s Art of the War comes to mind after hearing Dr. Wöllenstein’s comment that “China has finally made it.” Understanding where you are as well as where your competitors are is half way to winning the battle. Volkswagen needs to tackle the Chinese market with an entirely new attitude and approach in the age of smart EVs. As long as it can balance its strengthn with speed, innovation and execution, it will be fine.

Tu Le:
Lei and I will be sharing more of conversations with the men & women around the world moving the EV/AV mobility sectors forward as part of this China EVs & More MAX series. Some folks will be instantly recognizable, but some will just be people that are doing amazing in the space that we think deserve to be highlighted. 

Don’t worry though, Lei and I will continue to host our live weekly China EVs & More Twitter Spaces room that summarizes that week’s most important news coming out of the China EV, AV and mobility space. For those that can’t catch the live show, you can find the China EVs & More pod on all major platforms or wherever you normally get your podcasts. As EV adoption reaches its global tipping point, it will be even more important to stay updated on everything that’s happening here.

Lei and I are confident that China EVs & More is the best resource to do that. Until next time, as always, thanks for listening!

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