Volkswagen Panders to China

Profits overrule all else, including ESG, for the German company

A Volkswagen logo is seen as it launches its ID.6 and ID.6 CROZZ SUV at a world premiere ahead of the Shanghai Auto Show on April 18, 2021. Aly Song/Reuters

News Analysis

Volkswagen (VW) doesn’t seem to care much about China’s support of Russia during its Ukraine invasion. Neither, apparently, is the German company showing exceeding concern about the genocide in China’s Xinjiang region (where it has a factory that employs about 650 people).

VW isn’t quite committed to an increase in its manufacturing in the United States, where, in 2021, it sold more than 375,000 vehicles, as well as additional “units” from its subsidiaries, Porsche, Audi, and Skoda.

China, on the other hand, is the company’s “gold mine,” according to a former executive who was quoted in a March 16 Financial Times (FT) article. VW deliveries in China peaked at approximately 4 million per year between 2017 and 2019. That number fell to 3.3 million in 2021.

VW is working to rebuild sales there, perhaps in vain given the increasing Chinese competition. The strategy for countering this in a nationalist state such as China is to make VW more Chinese and less German. So Beijing gets outward displays of allegiance—so much so that VW is the only foreign car company to get not only two joint ventures with Chinese state-owned enterprises, but a third, over which it has “majority” ownership.

However, that majority stake doesn’t matter much in China, where the Chinese Communist Party (CCP) knows how to tighten the screws on businesses of any “nationality” to get exactly what it wants.

Sanctions against Russia over the war in Ukraine are apparently making VW executives nervous about their business in China, which could also be economically targeted by democracies and their allies if Chinese Leader Xi Jinping has his way and invades Taiwan. According to purported intelligence leaked from Russia, China had plans to invade this fall.

If Russia is any guide, that could mean that VW would have to pull out entirely from China, which would more than halve its profits.

This is probably the best explanation for why the company’s CEO, Herbert Diess, is working to smooth feathers and double down on his commitment to making more money in China. He acknowledges that China now has greater leverage over the company than the other way around.

“China probably doesn’t need VW, but VW needs China a lot,” Diess said in 2021.

That has changed since the early 1980s, when VW first entered China. Since then, at least some at the company realized that technology transfer made China “a ticking clock” that would eventually overtake VW with its own Chinese vehicle manufacturers.

Stephan Wöllenstein, head of Chinese operations for Volkswagen, is apparently knuckling under to ubiquitous CCP demands to give China more control. He said VW is quickly adapting to the need to gain from running the company more from within China, where VW’s new software chiefs, for example, are now “mainly of Asian heritage,” according to the FT’s Frankfurt correspondent, Joe Miller.

Wöllenstein said VW gets “preferential treatment” in China, where its majority stake in a joint venture indicates the “specific trust that the Chinese government has in the Volkswagen group.”

In 2022, Diess told the FT: “We will remain in China. We will invest. ... We are there to stay.” Despite VW’s declining sales in the country, he believes it “will be by far the biggest growth market for the foreseeable future.”

People visit the Volkswagen booth during a media day for the Auto Shanghai show on April 19, 2021. Aly Song/Reuters

“If we would constrain our business to only established democracies, which account for about 7 to 9 percent of world population, and this is shrinking, then clearly there would not be any viable business model for an auto manufacturer,” he said on March 15.

Diess earns approximately $12 million annually, according to Bloomberg. Apparently, pandering to a genocidal regime that pumps out most of the world’s pollution is worth the money.

The CEO is supported by his board. The FT quoted a member who hoped the Ukraine war would take the German government’s focus off China.

“They are very concerned now with the Ukrainian war. ... This German government has become very fast, very pragmatic,” the board member said.

Germany and VW need to get with the times and support democratic rather than dictatorial countries as part of their environmental, social, and governance (ESG) commitments. That should mean pulling out of China entirely rather than continuing the technology transfer and building up the totalitarian country economically to the point of it being able to invade a peaceful neighbor such as Taiwan.

But don’t count on Volkswagen to do this by itself. The company’s management is too focused on making short-term profits and insufficiently concerned about the long-term effect of those profits on the viability of democracy globally.

To fix the issue, democratic governments in the United States and Europe could sanction or tariff companies more broadly that continue to collaborate with the CCP.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.