Volkswagen is placing a significant wager in China, one of the world’s biggest and most competitive auto markets. Whether it will succeed is the question. The German automaker, which held a market share of more than 50%, has invested €3 billion in Hefei, a metropolis of 10 million people in central China, to build its largest research and development facility outside its home country.
This is a significant shift from the decades-long practice of multinational automakers operating in China by producing vehicles they designed abroad and sharing their technology with local partners. Fast-growing local rivals have pushed that tactic aside, significantly reducing sales of imported goods. It is creating automobiles especially for Chinese drivers, which are unlikely to be seen on European roads, though they might find their way to markets in Southeast Asia and the Middle East.
Volkswagen will determine whether the investment is worthwhile by recapturing market share and catching up to Chinese manufacturers like BYD and Geely as the new models become available. According to Rella Suskin, an equities analyst at Morningstar who covers the European automobile industry, such a strategy is essential to restoring competitiveness within China.
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