The Winter Olympics in Beijing is entering the final stages. On Sunday, the big closing ceremony will take place in the “Bird’s Nest”. Perhaps the hosts and the IOC are even a tad bit glad that the Games are about to end? Beijing and the Olympic Committee have been the focus of criticism over the past two weeks.
Now, human rights activists and the International Labor Organization (ILO) – after all, a specialized agency of the UN – have once again raised critical questions about the human rights situation in Xinjiang, as Marcel Grzanna reports. Once again, it was questioned whether the IOC supplier Anta actually does not engage in forced labor.
Meanwhile, cargo flights from western Xinjiang have been arriving at airports in Budapest and Liège since mid-January. We can only hope that the international attention on the important issues of human rights will not fade away with the Olympic spotlight. Naturally, we will continue to follow the story.
Volkswagen is no stranger to the controversy surrounding Xinjiang. After all, the company was publicly criticized for operating a plant in the Uyghur region. However, the carmaker is currently plagued by other woes: Overall sales in the People’s Republic are dropping, and EV sales fail to meet the company’s expectations. Whereas Volkswagen was once the absolute market leader, its competitors, especially from China itself, have caught up significantly, explains Frank Sieren. Still, VW remains optimistic that it will ultimately be able to convince Chinese customers to buy its EVs. But what else can VW executives do but conjure up a good mood? Our correspondent on the ground is far less optimistic.
Human Rights Watch (HRW) and the Coalition to End Forced Labor in the Uyghur Region (EUFL) accuse the International Olympic Committee (IOC) of lacking transparency. The federation, they say, is not creating a definitive certainty whether clothing from its Chinese outfitter, Anta, is truly made without the involvement of forced labor by Uyghur workers. The accusations follow the IOC’s shameful behavior regarding the case of tennis player Peng Shuai (China.Table reported).
For months, both the EUFL and HRW have been pressing the IOC to provide details of how it has audited Anta’s supply chain. The IOC responded in January with a statement. According to it, the IOC complies with the United Nations Guiding Principles on Business and Human Rights. The IOC had come to this conclusion after appropriate third-party inspections. Independent auditing institutions were responsible for the inspections and had directly reached out to workers. The result: everything is clean. Anta would not even use cotton in clothing for IOC members at all.
Human rights organizations were not satisfied with this and continued to press the issue. The IOC statement allegedly contains considerable gaps. The audit results lack transparency and do not include an analysis of the procurement methods of suppliers, they criticized. The IOC has not yet responded to their demand for corrections.
Since 2019 and until the end of the current year, Anta is the official IOC supplier. Officials wore its logo on their chests as early as the 2021 Summer Games in Tokyo. But it was not until the Winter Olympics in Beijing, that the IOC showed commitment to its duty of care under the UN Guiding Principles.
The demand to close the existing information gaps followed the publication of the recent report by the International Labor Organization (ILO) of the United Nations. Its expert commission sharply criticized the situation in Xinjiang at the end of last week and called on the Chinese government to align working conditions in the region with international standards.
“The Committee expresses its deep concern in respect of the policy directions expressed in
numerous national and regional policy and regulatory documents,” the ILO report said. In 2020, an international consortium of journalists working for China Cables had provided evidence, among other things, that forced labor had been ordered by authorities as one of the numerous measures to sinicize the Uyghur minority. Beijing had denied the allegations.
As expected, the ILO report generated controversial reactions. The US, which has banned the import of products from Xinjiang, welcomed the report and called on China to remedy the conditions. China’s representation at the UN Human Rights Commission headquarters in Geneva, on the other hand, tweeted, “As a ILO member state, the Chinese government is firmly committed to respecting, promoting and realizing the full access to productive and freely chosen employment and decent work for all China’s ethnic minority groups including Uyghurs in Xinjiang.”
In its report, the ILO expert committee essentially refers to numerous accusations made by the International Trade Union Confederation (ITUC) over the past two years. According to the report, the People’s Republic violates international conventions through a “widespread and systematic” forced labor program. Uyghurs, Turkish, and other Muslim minorities are targeted. They are being used “in violation of the right to freely chosen employment set out in Article 1(2) of Convention No. 122.” for agricultural and industrial activities throughout the Xinjiang Autonomous Region.
The ITUC assumes that the detainees of the internment camps in Xinjiang are affected the most. According to its estimate, up to 1.8 million people have been detained. This number is significantly higher than the frequently cited one million detained Uyghurs. Indicative of the large numbers is the growing proportions of the camps. The ITUC has identified 39 camps whose areas have tripled since 2017.
However, not only Uyghurs in Xinjiang are subjected to forced labor. According to the ILO report, at least 80,000 members of ethnic minorities in the region have been transferred to eastern or central China, where they are forced to work in factories. The International Trade Union Confederation believes that the workers were not given a choice about whether to leave their homelands. Instead, they and their families would face imprisonment otherwise. Forced laborers would also be under constant surveillance, not allowed to move freely, and burdened with virtually impossible production quotas. Wherever wages are paid, employers deduct a larger percentage for services such as accommodation, food, or insurance.
The ILO report is a testimony to the growing awareness of the United Nations of the situation in Xinjiang. The European Union, for its part, intends to fight forced labor with a supply chain law – albeit half-heartedly. At this critical time, of all times, two European airports are operating non-stop flights to the autonomous region in northwestern China. Since mid-January, cargo planes have been flying several times a week from Kashgar in the far west of Xinjiang to Budapest and Liège.
The Inter-Parliamentary Alliance on China in the European Parliament expressed indignation. “It is unthinkable that flights filled with goods from Xinjiang are coming directly to Belgium. We should be making every effort to stop goods tainted by Uyghur forced labor from entering our supply chains – not rolling out the red carpet,” Belgian MEP Samuel Cogolati told Politico magazine.
Cogolati, who has been banned from entering the People’s Republic, has so far unsuccessfully called on the EU Commission to identify which companies are being supplied with goods from Kashgar.
The situation in China is growing dire for Volkswagen, the long-time market leader. And it’s happening faster than some people in Germany expected. Nowhere else in the world did the carmaker suffer such heavy declines in the challenging second Covid year as in, of all places, its most important growth market, and EV stronghold.
Self-Awareness is the first step towards improvement. “2021 was one of the most difficult years in our history in China,” says Stephan Woellenstein, the still acting VW China head. So difficult, in fact, that he will be replaced by Ralf Brandstaetter in August.
While the Chinese car market grew by 3.2 percent last year, the Group sold 14 percent fewer cars in its most important sales market – the fewest since 2012. Volkswagen sold 3.3 million vehicles in China in 2021. The share of Volkswagen brands thus dropped to 11 percent. In recent years, the share had remained stable at around 14 to 15 percent. This means that Volkswagen is still the market leader in China, but has lost significant market share. A comparison with the past is even more telling: In its heyday, VW held a market share of 50 percent in the People’s Republic.
Naturally, such a share could not be maintained. The more players are in the market, the harder it becomes for individual manufacturers to defend their share. So no reason to get all worked up? Yes, there is, because the development at Volkswagen is indeed a cause for concern. Its competitor and runner-up, the Japanese manufacturer Toyota, has been able to increase its market share.
Wuling, the third-placed manufacturer (and thus the highest-ranked Chinese automaker), expanded its share by 1.5 percent. However, it sells small-scale EVs priced at €4,000. BMW, which is active in the premium segment rather than the volume segment, even managed to increase its share by 2 percent, while Mercedes lost 1 percent.
Within the Volkswagen family, Škoda is having even greater troubles than the VW brand. Audi sold 3.2 percent fewer vehicles. At least Porsche was able to increase sales by 8 percent and Bentley, whose vehicles sold 43 percent better in 2021 than in 2020. In short, luxury brands are booming while volume brands are weakening. But VW wants to be a brand for the masses, first and foremost.
One thing is clear: VW’s edge as a pioneer on the Chinese market no longer holds water. The Germans have been active in China since 1984. At that time, VW founded a joint venture with the state-owned carmaker SAIC in Shanghai. In 1991, the FAW-Volkswagen cooperation followed. With the Santana, VW initially created kind of a legend in wine red in China, a long-running success similar to the Beetle in Germany. Since the mid-1980s, VW has sold seven million models in the People’s Republic, a model that is largely unknown outside of China. Now, the joint venture SAIC Volkswagen Automotive is planning to end production of the model line for good. According to company sources, interest of Chinese customers has waned considerably.
The success of the Santana and its rapid growth was initially considered a spectacular achievement. VW now sells one in three of its cars in China and has a higher profit margin per unit than anywhere else. A good five million of its ten million cars worldwide are produced here each year. A large proportion is exported. However, this success is now turning into a burden. So when things don’t run smoothly in China, the whole Group starts to shake. More than 40 percent of VW’s revenue is generated in China.
The vital market now is EVs. In 2021, 3.3 million cars with new forms of propulsion (NEVs) were sold in China. EVs already account for 21 percent of new registrations. In 2019, it was still 6 percent. The market for electric vehicles is largely a Chinese game: Last year, not a single European manufacturer was among the top ten. And with Tesla, only one Western automaker in total. But if you want to compete in this game, you need a competitive EV. And that’s the core of the issue.
VW had set itself the goal of selling 80,000 to 100,000 vehicles of its ID. series in China during this year. This target was not reached, with sales of “just over 70,000”. By comparison, EV bellwether Tesla sold more units last December alone. Chinese market leader SAIC from Shanghai sold ten times more EVs than VW. Tesla, in 2nd place, still sold 430,000 and the southern Chinese manufacturer BYD 320,000. “Things went very well for the ID. family of electric cars until September, until then we virtually doubled our sales every month,” Woellenstein defended himself in an interview with the German business weekly Wirtschaftswoche. “But from the fourth quarter on, ID.s were then also affected by semiconductor bottlenecks and Covid-19-related plant shutdowns. Otherwise, we would certainly be among the top 5 in electric cars,” Woellenstein believes.
That sounds rather convincing at first. However, the question then arises as to why many other manufacturers have apparently not been hit by the chip shortage. After all, the EV market grew by more than 150 percent in China in 2021, while it only grew by just under 70 percent worldwide. The entry of a new competitor is particularly painful for VW: BYD’s Dolphin compact SUV was only launched last August. By the end of the year, BYD had sold 29,600 units. While the ID.4 only managed to sell 23,200 units. BYD is a complete newcomer to the segment. So far, it has only produced sedans and SUVs, and now, for the first time, a small city cruiser.
However, the car looks at least as good as the ID.4, some would even say it looks better – which is not surprising since it was developed by Wolfgang Egger, Audi’s former Head of Design. The ID.4 is also twice as expensive as the Dolphin at ¥200,000 (the equivalent of €28,500). And even the ID.3, which was launched at the end of last year, costs 50 percent more. Now, a VW engineer may be able to explain exactly why the ID.4 is supposed to be better in terms of quality. But should that be the case, is the customer really willing to pay 50 or even 100 percent more for hidden differences? Obviously not.
To make matters worse, BYD’s own batteries are performing far better. The Norwegian automobile association NAF recently tested EV batteries in freezing temperatures. Of the 31 vehicles reviewed, it was BYD’s Chinese Tang model from the subtropical city of Shenzhen, of all places, that performed best. Models from the Volkswagen family, on the other hand, showed some weaknesses. The sporty ID.4 GTX lost around 24 percent of its range, while the smaller ID.3 Pro S dropped 20 percent and the weaker ID.4 Pro a good 14 percent. The highest losses in the cold were recorded by the Škoda Enyaq iV80, which lost almost 32 percent of its standard range. BYD, on the other hand, lost only 11 percent.
VW is also lagging behind in China when it comes to digitalization. For the price of the ID.4, it is now common for Chinese brands to offer an electric SUV that parks on its own. For VW, on the other hand, even the stable implementation of wireless updates remains a major challenge. Unsurprisingly, VW dealers are unhappy with the vehicles they are supposed to pitch to customers.
However, Volkswagen’s brand image as a whole is not at fault. It is – still – good. Especially at the northern Chinese joint venture FAW-Volkswagen. It holds a respectable third place in China-wide product satisfaction with its locally produced vehicles, behind imported Audis and BMWs and, surprisingly, ahead of Porsche, which does not produce in China. Not the brand is flagging, but VW’s new EVs in the volume segment. They may have a good quality, but they simply don’t live up to the new competition posed by rapidly rising Chinese players. VW lost sight of its Chinese EV customers (China.Table reported). They want decent entertainment options on large screens, long battery ranges, and short charging times. These are all things where the Chinese competition now fares better than VW.
VW’s engineering virtues, which it prides itself on, are no longer enough to stay ahead in China. Insiders believe that this also has to do with the fact that the Germans make most of the decisions for global developments in Germany rather than in China. And if you’re not there, you can easily underestimate the standards that competitors like Xpeng and Nio set in areas like driver assistance systems and voice control.
Apparently, hardly anyone in Germany has yet realized just how far ahead the Chinese competition is. “In electric cars, autonomous driving and connectivity, some Chinese suppliers are now at least on a par,” Woellenstein admits. In fact, many of them are already significantly further ahead.
Woellenstein also says: “We expect that fully automated Level 4 driving will make its way into series-produced vehicles in China in the next three to four years.” But it will not take that long. AutoX has already started manufacturing Level 4 production vehicles in Shenzhen late last year (China.Table reported). So Volkswagen has less time than management believes. German cars can’t yet cope with complex everyday situations that AutoX’s can.
VW has catching up to do. The pioneer has since become the follower. Woellenstein, meanwhile, continues to believe that Chinese customers, who initially want a car that is as futuristic as possible for their “e-entry,” will eventually return to solid mid-range cars without a lot of bells and whistles. He obviously doesn’t know China very well.
Another failure in China was VW’s poor marketing. Since the fall last year, VW has at least been trying to take steps to counteract this. The Group has opened pop-up stores for the ID series in more than a hundred major Chinese cities. The main goal is to appeal to young buyers who can no longer be reached via traditional sales channels of car dealerships – and have thus so far ignored the VW brand.
Sorting out this mess is now the Herculean task for Woellenstein’s successor, Ralf Brantstaetter, who will also assume overall responsibility for China on the Group’s Board of Management in August. “I don’t expect Mr. Brandstaetter to turn the tide within a very short time. But I am very confident that he is the right person to tackle the issues successfully,” says works council chairwoman Daniela Cavallo in an interview with the German newspaper FAZ. “VW has to get its act together in China.”
But the Chinese competition will not sit idly by until Brandstaetter arrives on the scene. VW rivals want to become the dominant player in their domestic market. Just as the Europeans, the Japanese, the South Koreans, and the Americans are leaders in their respective markets. It is highly unlikely that a German manufacturer will be able to maintain this role in China in the long term.
Another day, another gold. The Chinese team also struck gold in ski freestyle on Wednesday – this time in men’s aerials. But there were also a few unlucky ones, among others, in short track, which is actually a Chinese specialty.
“Show respect, wherever you are!” – Peter Gerstmann soulfully interprets the company song of his Zeppelin group in the video. A singing manager? Gerstmann doesn’t mind. He enjoys the freedoms as CEO of a foundation company that focuses on both the common good and profits. “Fortunately, I’m allowed to pursue different goals than many of my CEO colleagues,” says the 60-year-old helmsman of the plant manufacturer and machinery distributor. He regularly performs with his employee Zeppelin band. The difference to the job as CEO? “I do not call the shots in the band,” he laughs.
Gerstmann is a different kind of CEO. The Rhinelander gives us a glimpse into his spiritual life. He comes across as a buddy, and it makes you wonder where he finds the authority to lead 10,000 employees. He started out in the Hertie department store in Troisdorf near Cologne. There, the working-class child started as an apprentice. Since then, he has been particularly repelled by strict hierarchies. “When the management was out and about in the department store, the employees would hide out of fear.” Gerstmann decides to do things differently should he ever get the chance.
After completing his apprenticeship, he is drawn to Cologne. He financed his business management studies as a retail salesman. He then heads controlling departments at a number of medium-sized companies. In 2000, a personnel consultant arranges a job for him in Friedrichshafen. The Zeppelin subsidiary “Silo & Apparatetechnik” is looking for a business manager.
He moves to Lake Constance with his wife and two young children. “But the recruiter had forgotten to tell me anything,” Gerstmann chuckles. That’s because Zeppelin Silo & Apparatetechnik is on the verge of bankruptcy. “I thought, what a mistake I made bringing my family here.” His job is on the line.
But things turn out differently: The old Silo managing director is fired, and Gerstmann takes over. He expands the product range, finds customers in new sectors, and soon lands a 35-million-euro contract – on Women’s Carnival Day, of all days, he recalls. “Silo & Apparatetechnik” is soon back in the black. “From then on, people listened to me.”
After several career stages in the Group, Gerstmann has been Chairman of the Management Board since 2010. Gerstmann’s time also saw the expansion of the company’s business in China, where Zeppelin manufactures systems for bulk cargo, such as plastic granules. Zeppelin operates two sites in China. There was a boost ten years ago when Zeppelin set up a joint venture in Shanghai.
“The first contract manufacturer didn’t have the contacts to secure large deals. The Chinese like to keep to themselves in this respect,” says Gerstmann. “Since we started operating the joint venture in Shanghai under Chinese management, the market share has been increasing.” China now accounts for 20 percent of the group’s plant engineering business. Gerstmann has already traveled to the Middle Kingdom around 20 times.
But he also likes to travel in Germany. Occasionally, he surprises branches with an unannounced visit. “The employees are always very open,” he recounts, usually there’s a coffee and an exchange of views on pressing matters. “I never had the impression that anyone was hiding from me,” he refers to his Hertie days. Andreas Schulte
The end of “panda diplomacy”? The Republican US Congresswoman Nancy Mace from South Carolina intends to ensure that panda offspring born in the USA should also remain in the USA. That’s because until now, cubs born abroad to giant pandas borrowed from China have to be handed back to the People’s Republic. “Pandas born in the United States deserve to stay in our country,” the U.S. politician wrote in a statement. She wants to enforce the end of “panda diplomacy” as part of the proposed “America Competes Act.”
The Winter Olympics in Beijing is entering the final stages. On Sunday, the big closing ceremony will take place in the “Bird’s Nest”. Perhaps the hosts and the IOC are even a tad bit glad that the Games are about to end? Beijing and the Olympic Committee have been the focus of criticism over the past two weeks.
Now, human rights activists and the International Labor Organization (ILO) – after all, a specialized agency of the UN – have once again raised critical questions about the human rights situation in Xinjiang, as Marcel Grzanna reports. Once again, it was questioned whether the IOC supplier Anta actually does not engage in forced labor.
Meanwhile, cargo flights from western Xinjiang have been arriving at airports in Budapest and Liège since mid-January. We can only hope that the international attention on the important issues of human rights will not fade away with the Olympic spotlight. Naturally, we will continue to follow the story.
Volkswagen is no stranger to the controversy surrounding Xinjiang. After all, the company was publicly criticized for operating a plant in the Uyghur region. However, the carmaker is currently plagued by other woes: Overall sales in the People’s Republic are dropping, and EV sales fail to meet the company’s expectations. Whereas Volkswagen was once the absolute market leader, its competitors, especially from China itself, have caught up significantly, explains Frank Sieren. Still, VW remains optimistic that it will ultimately be able to convince Chinese customers to buy its EVs. But what else can VW executives do but conjure up a good mood? Our correspondent on the ground is far less optimistic.
Human Rights Watch (HRW) and the Coalition to End Forced Labor in the Uyghur Region (EUFL) accuse the International Olympic Committee (IOC) of lacking transparency. The federation, they say, is not creating a definitive certainty whether clothing from its Chinese outfitter, Anta, is truly made without the involvement of forced labor by Uyghur workers. The accusations follow the IOC’s shameful behavior regarding the case of tennis player Peng Shuai (China.Table reported).
For months, both the EUFL and HRW have been pressing the IOC to provide details of how it has audited Anta’s supply chain. The IOC responded in January with a statement. According to it, the IOC complies with the United Nations Guiding Principles on Business and Human Rights. The IOC had come to this conclusion after appropriate third-party inspections. Independent auditing institutions were responsible for the inspections and had directly reached out to workers. The result: everything is clean. Anta would not even use cotton in clothing for IOC members at all.
Human rights organizations were not satisfied with this and continued to press the issue. The IOC statement allegedly contains considerable gaps. The audit results lack transparency and do not include an analysis of the procurement methods of suppliers, they criticized. The IOC has not yet responded to their demand for corrections.
Since 2019 and until the end of the current year, Anta is the official IOC supplier. Officials wore its logo on their chests as early as the 2021 Summer Games in Tokyo. But it was not until the Winter Olympics in Beijing, that the IOC showed commitment to its duty of care under the UN Guiding Principles.
The demand to close the existing information gaps followed the publication of the recent report by the International Labor Organization (ILO) of the United Nations. Its expert commission sharply criticized the situation in Xinjiang at the end of last week and called on the Chinese government to align working conditions in the region with international standards.
“The Committee expresses its deep concern in respect of the policy directions expressed in
numerous national and regional policy and regulatory documents,” the ILO report said. In 2020, an international consortium of journalists working for China Cables had provided evidence, among other things, that forced labor had been ordered by authorities as one of the numerous measures to sinicize the Uyghur minority. Beijing had denied the allegations.
As expected, the ILO report generated controversial reactions. The US, which has banned the import of products from Xinjiang, welcomed the report and called on China to remedy the conditions. China’s representation at the UN Human Rights Commission headquarters in Geneva, on the other hand, tweeted, “As a ILO member state, the Chinese government is firmly committed to respecting, promoting and realizing the full access to productive and freely chosen employment and decent work for all China’s ethnic minority groups including Uyghurs in Xinjiang.”
In its report, the ILO expert committee essentially refers to numerous accusations made by the International Trade Union Confederation (ITUC) over the past two years. According to the report, the People’s Republic violates international conventions through a “widespread and systematic” forced labor program. Uyghurs, Turkish, and other Muslim minorities are targeted. They are being used “in violation of the right to freely chosen employment set out in Article 1(2) of Convention No. 122.” for agricultural and industrial activities throughout the Xinjiang Autonomous Region.
The ITUC assumes that the detainees of the internment camps in Xinjiang are affected the most. According to its estimate, up to 1.8 million people have been detained. This number is significantly higher than the frequently cited one million detained Uyghurs. Indicative of the large numbers is the growing proportions of the camps. The ITUC has identified 39 camps whose areas have tripled since 2017.
However, not only Uyghurs in Xinjiang are subjected to forced labor. According to the ILO report, at least 80,000 members of ethnic minorities in the region have been transferred to eastern or central China, where they are forced to work in factories. The International Trade Union Confederation believes that the workers were not given a choice about whether to leave their homelands. Instead, they and their families would face imprisonment otherwise. Forced laborers would also be under constant surveillance, not allowed to move freely, and burdened with virtually impossible production quotas. Wherever wages are paid, employers deduct a larger percentage for services such as accommodation, food, or insurance.
The ILO report is a testimony to the growing awareness of the United Nations of the situation in Xinjiang. The European Union, for its part, intends to fight forced labor with a supply chain law – albeit half-heartedly. At this critical time, of all times, two European airports are operating non-stop flights to the autonomous region in northwestern China. Since mid-January, cargo planes have been flying several times a week from Kashgar in the far west of Xinjiang to Budapest and Liège.
The Inter-Parliamentary Alliance on China in the European Parliament expressed indignation. “It is unthinkable that flights filled with goods from Xinjiang are coming directly to Belgium. We should be making every effort to stop goods tainted by Uyghur forced labor from entering our supply chains – not rolling out the red carpet,” Belgian MEP Samuel Cogolati told Politico magazine.
Cogolati, who has been banned from entering the People’s Republic, has so far unsuccessfully called on the EU Commission to identify which companies are being supplied with goods from Kashgar.
The situation in China is growing dire for Volkswagen, the long-time market leader. And it’s happening faster than some people in Germany expected. Nowhere else in the world did the carmaker suffer such heavy declines in the challenging second Covid year as in, of all places, its most important growth market, and EV stronghold.
Self-Awareness is the first step towards improvement. “2021 was one of the most difficult years in our history in China,” says Stephan Woellenstein, the still acting VW China head. So difficult, in fact, that he will be replaced by Ralf Brandstaetter in August.
While the Chinese car market grew by 3.2 percent last year, the Group sold 14 percent fewer cars in its most important sales market – the fewest since 2012. Volkswagen sold 3.3 million vehicles in China in 2021. The share of Volkswagen brands thus dropped to 11 percent. In recent years, the share had remained stable at around 14 to 15 percent. This means that Volkswagen is still the market leader in China, but has lost significant market share. A comparison with the past is even more telling: In its heyday, VW held a market share of 50 percent in the People’s Republic.
Naturally, such a share could not be maintained. The more players are in the market, the harder it becomes for individual manufacturers to defend their share. So no reason to get all worked up? Yes, there is, because the development at Volkswagen is indeed a cause for concern. Its competitor and runner-up, the Japanese manufacturer Toyota, has been able to increase its market share.
Wuling, the third-placed manufacturer (and thus the highest-ranked Chinese automaker), expanded its share by 1.5 percent. However, it sells small-scale EVs priced at €4,000. BMW, which is active in the premium segment rather than the volume segment, even managed to increase its share by 2 percent, while Mercedes lost 1 percent.
Within the Volkswagen family, Škoda is having even greater troubles than the VW brand. Audi sold 3.2 percent fewer vehicles. At least Porsche was able to increase sales by 8 percent and Bentley, whose vehicles sold 43 percent better in 2021 than in 2020. In short, luxury brands are booming while volume brands are weakening. But VW wants to be a brand for the masses, first and foremost.
One thing is clear: VW’s edge as a pioneer on the Chinese market no longer holds water. The Germans have been active in China since 1984. At that time, VW founded a joint venture with the state-owned carmaker SAIC in Shanghai. In 1991, the FAW-Volkswagen cooperation followed. With the Santana, VW initially created kind of a legend in wine red in China, a long-running success similar to the Beetle in Germany. Since the mid-1980s, VW has sold seven million models in the People’s Republic, a model that is largely unknown outside of China. Now, the joint venture SAIC Volkswagen Automotive is planning to end production of the model line for good. According to company sources, interest of Chinese customers has waned considerably.
The success of the Santana and its rapid growth was initially considered a spectacular achievement. VW now sells one in three of its cars in China and has a higher profit margin per unit than anywhere else. A good five million of its ten million cars worldwide are produced here each year. A large proportion is exported. However, this success is now turning into a burden. So when things don’t run smoothly in China, the whole Group starts to shake. More than 40 percent of VW’s revenue is generated in China.
The vital market now is EVs. In 2021, 3.3 million cars with new forms of propulsion (NEVs) were sold in China. EVs already account for 21 percent of new registrations. In 2019, it was still 6 percent. The market for electric vehicles is largely a Chinese game: Last year, not a single European manufacturer was among the top ten. And with Tesla, only one Western automaker in total. But if you want to compete in this game, you need a competitive EV. And that’s the core of the issue.
VW had set itself the goal of selling 80,000 to 100,000 vehicles of its ID. series in China during this year. This target was not reached, with sales of “just over 70,000”. By comparison, EV bellwether Tesla sold more units last December alone. Chinese market leader SAIC from Shanghai sold ten times more EVs than VW. Tesla, in 2nd place, still sold 430,000 and the southern Chinese manufacturer BYD 320,000. “Things went very well for the ID. family of electric cars until September, until then we virtually doubled our sales every month,” Woellenstein defended himself in an interview with the German business weekly Wirtschaftswoche. “But from the fourth quarter on, ID.s were then also affected by semiconductor bottlenecks and Covid-19-related plant shutdowns. Otherwise, we would certainly be among the top 5 in electric cars,” Woellenstein believes.
That sounds rather convincing at first. However, the question then arises as to why many other manufacturers have apparently not been hit by the chip shortage. After all, the EV market grew by more than 150 percent in China in 2021, while it only grew by just under 70 percent worldwide. The entry of a new competitor is particularly painful for VW: BYD’s Dolphin compact SUV was only launched last August. By the end of the year, BYD had sold 29,600 units. While the ID.4 only managed to sell 23,200 units. BYD is a complete newcomer to the segment. So far, it has only produced sedans and SUVs, and now, for the first time, a small city cruiser.
However, the car looks at least as good as the ID.4, some would even say it looks better – which is not surprising since it was developed by Wolfgang Egger, Audi’s former Head of Design. The ID.4 is also twice as expensive as the Dolphin at ¥200,000 (the equivalent of €28,500). And even the ID.3, which was launched at the end of last year, costs 50 percent more. Now, a VW engineer may be able to explain exactly why the ID.4 is supposed to be better in terms of quality. But should that be the case, is the customer really willing to pay 50 or even 100 percent more for hidden differences? Obviously not.
To make matters worse, BYD’s own batteries are performing far better. The Norwegian automobile association NAF recently tested EV batteries in freezing temperatures. Of the 31 vehicles reviewed, it was BYD’s Chinese Tang model from the subtropical city of Shenzhen, of all places, that performed best. Models from the Volkswagen family, on the other hand, showed some weaknesses. The sporty ID.4 GTX lost around 24 percent of its range, while the smaller ID.3 Pro S dropped 20 percent and the weaker ID.4 Pro a good 14 percent. The highest losses in the cold were recorded by the Škoda Enyaq iV80, which lost almost 32 percent of its standard range. BYD, on the other hand, lost only 11 percent.
VW is also lagging behind in China when it comes to digitalization. For the price of the ID.4, it is now common for Chinese brands to offer an electric SUV that parks on its own. For VW, on the other hand, even the stable implementation of wireless updates remains a major challenge. Unsurprisingly, VW dealers are unhappy with the vehicles they are supposed to pitch to customers.
However, Volkswagen’s brand image as a whole is not at fault. It is – still – good. Especially at the northern Chinese joint venture FAW-Volkswagen. It holds a respectable third place in China-wide product satisfaction with its locally produced vehicles, behind imported Audis and BMWs and, surprisingly, ahead of Porsche, which does not produce in China. Not the brand is flagging, but VW’s new EVs in the volume segment. They may have a good quality, but they simply don’t live up to the new competition posed by rapidly rising Chinese players. VW lost sight of its Chinese EV customers (China.Table reported). They want decent entertainment options on large screens, long battery ranges, and short charging times. These are all things where the Chinese competition now fares better than VW.
VW’s engineering virtues, which it prides itself on, are no longer enough to stay ahead in China. Insiders believe that this also has to do with the fact that the Germans make most of the decisions for global developments in Germany rather than in China. And if you’re not there, you can easily underestimate the standards that competitors like Xpeng and Nio set in areas like driver assistance systems and voice control.
Apparently, hardly anyone in Germany has yet realized just how far ahead the Chinese competition is. “In electric cars, autonomous driving and connectivity, some Chinese suppliers are now at least on a par,” Woellenstein admits. In fact, many of them are already significantly further ahead.
Woellenstein also says: “We expect that fully automated Level 4 driving will make its way into series-produced vehicles in China in the next three to four years.” But it will not take that long. AutoX has already started manufacturing Level 4 production vehicles in Shenzhen late last year (China.Table reported). So Volkswagen has less time than management believes. German cars can’t yet cope with complex everyday situations that AutoX’s can.
VW has catching up to do. The pioneer has since become the follower. Woellenstein, meanwhile, continues to believe that Chinese customers, who initially want a car that is as futuristic as possible for their “e-entry,” will eventually return to solid mid-range cars without a lot of bells and whistles. He obviously doesn’t know China very well.
Another failure in China was VW’s poor marketing. Since the fall last year, VW has at least been trying to take steps to counteract this. The Group has opened pop-up stores for the ID series in more than a hundred major Chinese cities. The main goal is to appeal to young buyers who can no longer be reached via traditional sales channels of car dealerships – and have thus so far ignored the VW brand.
Sorting out this mess is now the Herculean task for Woellenstein’s successor, Ralf Brantstaetter, who will also assume overall responsibility for China on the Group’s Board of Management in August. “I don’t expect Mr. Brandstaetter to turn the tide within a very short time. But I am very confident that he is the right person to tackle the issues successfully,” says works council chairwoman Daniela Cavallo in an interview with the German newspaper FAZ. “VW has to get its act together in China.”
But the Chinese competition will not sit idly by until Brandstaetter arrives on the scene. VW rivals want to become the dominant player in their domestic market. Just as the Europeans, the Japanese, the South Koreans, and the Americans are leaders in their respective markets. It is highly unlikely that a German manufacturer will be able to maintain this role in China in the long term.
Another day, another gold. The Chinese team also struck gold in ski freestyle on Wednesday – this time in men’s aerials. But there were also a few unlucky ones, among others, in short track, which is actually a Chinese specialty.
“Show respect, wherever you are!” – Peter Gerstmann soulfully interprets the company song of his Zeppelin group in the video. A singing manager? Gerstmann doesn’t mind. He enjoys the freedoms as CEO of a foundation company that focuses on both the common good and profits. “Fortunately, I’m allowed to pursue different goals than many of my CEO colleagues,” says the 60-year-old helmsman of the plant manufacturer and machinery distributor. He regularly performs with his employee Zeppelin band. The difference to the job as CEO? “I do not call the shots in the band,” he laughs.
Gerstmann is a different kind of CEO. The Rhinelander gives us a glimpse into his spiritual life. He comes across as a buddy, and it makes you wonder where he finds the authority to lead 10,000 employees. He started out in the Hertie department store in Troisdorf near Cologne. There, the working-class child started as an apprentice. Since then, he has been particularly repelled by strict hierarchies. “When the management was out and about in the department store, the employees would hide out of fear.” Gerstmann decides to do things differently should he ever get the chance.
After completing his apprenticeship, he is drawn to Cologne. He financed his business management studies as a retail salesman. He then heads controlling departments at a number of medium-sized companies. In 2000, a personnel consultant arranges a job for him in Friedrichshafen. The Zeppelin subsidiary “Silo & Apparatetechnik” is looking for a business manager.
He moves to Lake Constance with his wife and two young children. “But the recruiter had forgotten to tell me anything,” Gerstmann chuckles. That’s because Zeppelin Silo & Apparatetechnik is on the verge of bankruptcy. “I thought, what a mistake I made bringing my family here.” His job is on the line.
But things turn out differently: The old Silo managing director is fired, and Gerstmann takes over. He expands the product range, finds customers in new sectors, and soon lands a 35-million-euro contract – on Women’s Carnival Day, of all days, he recalls. “Silo & Apparatetechnik” is soon back in the black. “From then on, people listened to me.”
After several career stages in the Group, Gerstmann has been Chairman of the Management Board since 2010. Gerstmann’s time also saw the expansion of the company’s business in China, where Zeppelin manufactures systems for bulk cargo, such as plastic granules. Zeppelin operates two sites in China. There was a boost ten years ago when Zeppelin set up a joint venture in Shanghai.
“The first contract manufacturer didn’t have the contacts to secure large deals. The Chinese like to keep to themselves in this respect,” says Gerstmann. “Since we started operating the joint venture in Shanghai under Chinese management, the market share has been increasing.” China now accounts for 20 percent of the group’s plant engineering business. Gerstmann has already traveled to the Middle Kingdom around 20 times.
But he also likes to travel in Germany. Occasionally, he surprises branches with an unannounced visit. “The employees are always very open,” he recounts, usually there’s a coffee and an exchange of views on pressing matters. “I never had the impression that anyone was hiding from me,” he refers to his Hertie days. Andreas Schulte
The end of “panda diplomacy”? The Republican US Congresswoman Nancy Mace from South Carolina intends to ensure that panda offspring born in the USA should also remain in the USA. That’s because until now, cubs born abroad to giant pandas borrowed from China have to be handed back to the People’s Republic. “Pandas born in the United States deserve to stay in our country,” the U.S. politician wrote in a statement. She wants to enforce the end of “panda diplomacy” as part of the proposed “America Competes Act.”
