VW wants to step up investment into US manufacturing

VW CEO sees strong US growth as Ukraine war hits Europe, Covid slows China.

Volkswagen wants to boost electric-vehicle investment in North America in particular as the fallout from the war and the pandemic continue to weigh on growth in other regions. Picture: AFP

Volkswagen said it is accelerating its push into key US auto markets where it expects little impact on growth from the Ukraine war or China’s Covid-19 lockdowns.

VW CEO Herbert Diess told reporters during an earnings call on Wednesday that the company wants to boost electric-vehicle investment in North America in particular as the fallout from the war and the pandemic continue to weigh on growth in other regions.

“We see that America will be untouched by what’s happening in Europe, so it should be geostrategically a region in which we should invest more,” Mr Diess said.

VW’s pivot to the US shows how China’s economic slowdown and the war in Ukraine could be causing a global investment reshuffle as international manufacturers – VW has 120 plants worldwide – seek safer, more predictable markets that are better insulated from the shocks that have been battering the world economy the past three years.

According to a report by the Organisation for Economic Cooperation and Development – a club of the world’s most advanced economies – the US was the top destination for foreign investment last year. Foreign investment in the US surged 133% to $US382bn that year, while investment in China grew 32% to $US334bn, according to the OECD report.

Despite its global heft, VW remains a niche player in the US after past bets on models failed to significantly boost its market share there. VW sales in the US, Canada and Mexico accounted for just 4.1% of new-car sales in the entire North American market in the first quarter, VW said in its earnings report. The US accounted for 6% of VW worldwide sales in the first quarter, compared with 39% for Europe and 41% for China.

VW’s goal of boosting its US market share to 10% by 2030 is an uphill battle for the company. During the first quarter, VW sales in the US moved in the opposite direction, declining 30.1%, and its market for all of North America slipped to 4.1% from 4.8% a year earlier.

Volkswagen CEO Herbert Diess. Picture: Getty Images

Mr Diess is banking on EVs to boost the company’s fortunes in the US He said on Wednesday that VW’s share of US fully electric-vehicle sales are twice as high as its share of the overall market.

Mr Diess said the company is already beginning to take orders for EVs that won’t be built until next year because order books for 2022 are already full beyond the capacity of its current EV production facilities. VW has struggled for months with supply-chain constraints.

“Now is the time to step up our operations. It’s a historic chance to step over into EVs,” Mr Diess said. “We see the American region as a continuing growing market for individual mobility because there is no alternative to that.” VW, which is set to begin building its ID.4 electric hatchback at its plant in Chattanooga, Tenn., this fall, has said it was considering doubling the plant’s capacity, potentially to build the ID.Buzz, an electric relaunch of its iconic hippie van. VW also operates a large VW brand plant and an Audi manufacturing plant in Mexico.

Mr Diess told reporters on Wednesday that VW’s US plans went “beyond Chattanooga,” saying that the plant alone wouldn’t be sufficient to achieve the company’s US sales goals.

“We are for sure considering additional capacities. We have not yet decided whether that would be in the United States or Mexico, most likely in the United States,” he said.

A formal decision to expand the Chattanooga plant could come before the summer, according to a person familiar with discussions.

A decision for additional production facilities in the US could come later and may be linked to the company’s next-.generation electric vehicle technology, the Trinity model, that will first be built in a new state-of-the-art factory in Wolfsburg, near its Germany headquarters, and is slated to begin production in 2026. A US plant based on Trinity’s technology would likely come later, the person said.

VW’s sales and market share of EVs is growing faster than its sales of conventional vehicles with internal combustion engines, the company said. Worldwide, fully electric vehicles accounted for 5.2% of the company’s total new-car sales in the first three months of 2022, compared with 2.5% last year. The company is expecting to sell around 700,000 electric vehicles this year.

Tesla chief Elon Musk said last month that the EV leader would likely produce 1.5 million vehicles this year, up 60% from last year.

VW said it was too soon to predict how the war in Ukraine and the Covid-19 lockdowns in China would affect its business and left its outlook for the year unchanged. Sales in the year’s first quarter rose to 62.74bn euros, equivalent to $US66bn, from €£.38bn, while after-tax profit almost doubled to €6.72bn from €3.41bn, it added.

Kim Richters contributed to this article.

The Wall Street Journal