VW is ramping up in China via its local partner FAW

VW is ramping up in China via its local partner FAW

Volkswagen Group's Chinese joint venture, FAW-Volkswagen Automobile Company, is bringing on stream a vast amount of new production capacity in China this year, as the German automaker looks to strengthen its lead position in the Chinese market and prepares for changing government regulations.

At the last count, a total of 950,000 units of new annual capacity is expected to come on stream at the joint venture this year, split between four different sites across China.

Nine new models are scheduled to go into production across the company's five assembly plants this year, including four new SUV models.

And this is just one of the Volkswagen's two main joint ventures in the country, making this probably the fastest rate of expansion ever by any automaker in a single year.

FAW-Volkswagen, 49%-owned by the German automaker, sold 2.12 million vehicles in 2017 – up 5% on the previous year, including 1,405,000 Volkswagens, 595,000 Audis and smaller volumes of other brands within the Volkswagen group.

Volkswagen also has a 50%-owned joint venture with Shanghai-based SAIC Motor, SAIC-Volkswagen Automotive Company, which sold a further 2.06 million vehicles last year - mainly Volkswagens but also Skoda-branded cars.

Little expansion appears to be taking place at SAIC-Volkswagen this year, however. A slight change in ownership, with Audi taking a 1% stake in the joint venture from Volkswagen, will pave the way for the company to produce Audi vehicles in the country. This will also help ease tensions with SAIC-Volkswagen dealers.

Combined, Volkswagen's two main joint ventures in China sold 4.18 million vehicles last year, up by over 5% on the previous year and better than the overall market's 3% growth.

Volkswagen also finished the year ahead of General Motors, which reported 4.04 million combined sales among its Chinese joint ventures, for the first time in several years.

China, which now accounts for around 40% of Volkswagen group's global sales, has become hugely important to the German carmaker and this is reflected in the unprecedented levels of investment it is making in the country.

At the end of March FAW-Volkswagen began operations at a newly-built plant in the city of Changchun in China's north-eastern Jilin province. The plant's initial annual production capacity of 150,000 vehicles and total planned investment in this facility is CNY6.4bn (US$1.02bn).

The plant is entirely dedicated to the production of Audi's Q-range of SUVs and has advanced manufacturing equipment including 510 robots in the bodyshop.

At the end of May FAW-Volkswagen opened a new plant in Qingdao in China's eastern Shandong province, with a designated annual production capacity of 300,000 vehicles with 3,000 workers. The plant will mainly help fulfill demand for vehicles in China's northern and eastern provinces.

At full swing the Qingdao plant will produce five models using flexible production lines, starting with the new generation Bora passenger car based on the MQB platform and two Audi models. The facility is also designed to produce electric vehicles (EVs).

Total investment in the Qingdao plant is expected to reach CNY10bn (US$1.56bn) by the end of the decade. It is among FAW-Volkswagen's most energy-efficient production facilities, using a solar power system that helps cut the annual electricity bill by around CNY1m.

At the end of June FAW-Volkswagen opened a new production line at its Foshan plant in China's southerly Guangdong province, completing the second phase of a three-stage investment at what the company calls the Foshan "mega-plant".

The third and final expansion phase is scheduled to be completed by 2020, bringing total investment in the plant to CNY10bn (US$1.53bn) and production capacity to 600,000 vehicles per year.

The second production line will produce the Audi Q2L and the VW T-Roc models, the latter being the first VW-badged SUV to be produced in China by FAW-Volkswagen. They will share Volkswagen's MQB modular platform. The third line is expected to build new EV models.

FAW-Volkswagen also began pre-production at a new plant in Tianjinat the end of the first quarter of 2018, with full production expected to begin in the second half of the year. The CNY19.5bn (US$3bn) highly automated facility will employ around 6,000 people at full-swing.

FAW-Volkswagen also plans to build an EV battery assembly line at the Foshansite in time for when the third production line comes on stream.

In a market the size of China, that also still has to reach maturity, investments have to be substantial just to stand still -let alone increase market share.Having a strong local partner in China that is able to match this ambition is essential.

These heavy investments will ensure that the German automaker will also keep up with the market's changing requirements, including minimum sales quotas for new-energy vehicles mandated by the central government which kick in next year.