Volkswagen prepares for a deglobalised world

BERLIN—For years, Volkswagen HER

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flourished as a global company, building and selling its cars around the world. But as war, health issues and trade disputes roll back decades of globalization, the German giant is changing its manufacturing approaches to adapt.

VW’s resilience effort includes strategies to boost access to components and raw materials and shorten supply chains to make its regional businesses less dependent on distant suppliers, according to senior company officials.

Without the vast domestic market of its American competitors, VW has long been betting on international markets for its growth. Now the world’s second-largest automaker, VW has benefited like few other companies from decades of post-Cold War easing, lower import tariffs and just-in-time supply chains.

Yet, as the world grows increasingly turbulent, VW’s international reach faces a test: Can such a global business last as supply chains are strained by the global pandemic, the shortage of semiconductors, rising commodity prices and new geopolitical divides?

VW was one of the first major manufacturers to notice semiconductor supplies were drying up and cut production in the first three months of 2021.


Photo:

Liesa Johannssen-Koppitz / Bloomberg News

When Covid-19 shut down China in early 2020, components built there suddenly disappeared from supply chains and VW factories in China and Europe sat idle. At the end of the year, VW produced 18% fewer vehicles than the previous year, according to the company’s annual report.

Then came the next crisis. One of the first major manufacturers to notice the global supply of semiconductors was drying up, VW cut production at factories in China, Europe and North America in the first three months of 2021, as that the industry was rebounding from the pandemic shutdowns. VW’s production fell another 7% by the end of 2021, the company said.

Even isolated incidents have highlighted the fragility of a company woven across borders. Earlier this year, a freighter fire destroyed nearly 4,000 of Volkswagen’s most expensive cars, including Porsches, Bentleys and Lamborghini, en route to the United States.

In February, when Russia invaded Ukraine, shutting down the country’s economy, Volkswagen was left without wire harnesses – contraptions used to organize cables and connectors in a car – made in the European country. East, forcing it to halt production of electric vehicles at VW, Audi and Porsche, and halt production at its largest German plant in Wolfsburg.

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As geopolitical tensions rise, members of VW’s supervisory board are now concerned about VW’s growing reliance on the Chinese market, its largest, fastest growing and fastest growing market. more profitable.

Moved by the rapid succession of crises, VW directors and union leaders said VW management should bolster the company’s fragile international supply chain and step up investment in European and US markets to dilute dependency. of the company vis-à-vis China.

“We’re not saying they should contract in China, but we’re saying they should focus on other markets as well,” a member of the supervisory board said.

Murat Aksel, VW’s purchasing director, is restructuring how the company sources parts and materials and has begun monitoring every supplier and those suppliers’ suppliers.

“The chip crisis has shown us that we need to be involved across the whole supply chain,” he said.

Production shutdowns caused by the Russian invasion of Ukraine and the loss of Chinese components during the pandemic showed how VW could no longer focus solely on getting the cheapest parts, no matter how far apart or scattered their producers.

Now, Aksel said, VW is making uninterrupted parts delivery a priority over competitive pricing, and could accept dual sourcing of some components, a practice the industry abandoned years ago in favor of single-source components and just-in-time delivery.

“We always want competitive prices, but my priority is to secure the supply. Without components, you can’t build cars,” Aksel said. “And zero production means zero profit.”

VW is now applying this new strategy as it tries to restore parts deliveries from Ukrainian suppliers who have struggled to maintain production during the dispute. VW and suppliers such as Leoni AG, one of its main wiring harness suppliers, are duplicating Ukrainian production in other countries, including Poland, Romania and Tunisia.

In China, where VW makes a large share of its profits, the automaker has come under fire for operating a factory in Xinjiang.


Photo:

Chinese daily/Reuters

In China, where the company makes nearly 40% of its annual sales and a good chunk of its profits, VW has come under fire for operating a factory in Xinjiang. Human rights advocates say China runs re-education camps there for members of the local Muslim population. VW says it employs Muslim Uyghurs at the plant, but does not use forced labor.

A senior VW executive who has now left the company said VW requires everyone working at the Xinjiang plant to be employed with an individual contract rather than using a local employment agency. This is to prevent Chinese authorities from using such agencies to conceal indentured labor, the person said.

China has denied using forced labor. Chinese authorities and state-controlled media have criticized Western companies for highlighting forced labor issues in Xinjiang.

As part of its efforts to reduce the weight of China in its business, VW said it will invest more than $7 billion in the United States over the next five years, mainly in the development of electric vehicles in the world. goal of doubling its share of the US market to at least ten percent.

Volkswagen is investing in electric vehicles more than other traditional automakers in the United States WSJ enters an engine factory that is being transformed into a battery factory as the German giant seeks to change its image and become a rival of Tesla. Photo illustration: George Downs

A new Audi factory is under consideration, said Hildegard Wortmann, head of sales for VW Group and luxury car brand Audi. VW officials have also said the company may build a battery plant in the United States.

“China will remain one of the growth regions, but, yes, we need to strengthen our footprint in the United States,” Volkswagen Chief Executive Herbert Diess said earlier this month. “And that could lead to a situation where we can better balance our global setup.”

In the 1960s, VW conquered the American market with its iconic Beetle, immortalized in the 1968 Walt Disney film “The Love Bug” which featured a self-driving racing Beetle named Herbie. But when VW focused on China in the 1980s, it neglected its US business. Asian automakers led by Toyota Motor Corp.

and Nissan Motor Co.

raced in front of American consumers.

After refocusing its product portfolio on SUVs, VW turned a profit in the United States last year for the first time in years. VW has struggled in the past to significantly increase its market share in the United States. But as EVs begin to play a bigger role in the market, VW’s share of U.S. EV sales is growing faster than the company’s overall vehicle sales.

VW’s share of U.S. electric vehicle sales is growing faster than the company’s overall vehicle sales.


Photo:

Scott Olson/Getty Images

VW now ranks second in US EV sales after Tesla Inc.,

Diess said with 8% market share for electric vehicles, twice VW’s overall market share in the United States. VW is aiming for a 10% overall market share in the United States, VW officials said.

In addition to the models already announced, including the ID. Buzz, an electric resurrection of VW’s iconic microbus, the original motorhome, VW is also planning to launch an electric pickup truck in the United States to capitalize on the popularity of electric truck startups like Rivian Automotive Inc., experts said. VW officials.

“We’ve been discussing this for two years,” said Scott Keogh, CEO of Volkswagen Group of America Inc. “We have different ideas. I think it’s a good opportunity.

Write to William Boston at [email protected]

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