Chinese Investors Eye Volkswagen’s Excess German PlantsChinese Investors Eye Volkswagen’s Excess German Plants

A Reuters source has revealed that Chinese automakers are expressing interest in acquiring two of Volkswagen’s underutilized production facilities in Germany, potentially offering them a route to exporting vehicles to North American markets via Europe.

The move follows a public standoff between Volkswagen and its workers’ union ahead of a sweeping range of cost-cutting and restructuring measures announced by Volkswagen Group CEO Oliver Blume in late December.

While VW has reassured workers that the future of its Osnabrück and Dresden plants remains secure – albeit with some operational adjustments – there is still considerable uncertainty surrounding the fate of these facilities. The Osnabrück site, for instance, has secured production of the T-Roc Cabriolet only through 2027, leaving many employees uncertain about their future. The plant, which employs about 2,300 workers, could face a shift in focus, further complicating matters. As VW confronts pressures both domestically and internationally, a potential acquisition by Chinese investors of the former Karmann factory is raising broader questions about the long-term stability of the European automotive industry.

Experts have highlighted that while a deal like this could provide VW with much-needed financial relief and streamline its operations, it could also give Chinese automakers a foothold in the German and European markets. This opens up a unique set of opportunities and risks for VW, which reported a 2.3% decline in global sales for 2024 compared to a year earlier, with overall sales falling to 9.03 million units. More concerning, however, was a significant drop in sales in China, where the company saw a 10% decline over 2023, selling 2.9 million units.

This dip in performance underscores the uphill battle German automakers face in maintaining their market share in China while navigating increasingly complex trade barriers and tariffs.

The potential sale of VW plants to Chinese investors comes at a critical moment, especially given the escalating geopolitical tensions between China and the European Union. In 2024, the EU implemented tariffs on Chinese-made electric vehicles, further complicating VW’s pricing strategy and increasing competitive pressure from Chinese manufacturers.

Volkswagen is under financial pressure to cut workforce. Among global automakers, Volkswagen ranks dead last by a wide margin on vehicles produced per employee. It will be a tough political pill to swallow to keep Chinese automakers who would employ German workers out of EU markets.

If Chinese automakers were to establish new factories in Europe in order to bypass the EU tariffs and solidify their presence, the process could take three to four years, as demonstrated by BYD’s new plant in Hungary. Chery’s recent acquisition of a former Nissan facility in Spain is another example of China’s expanding presence in European auto manufacturing.

Polestar, the Swedish BEV brand owned by Geely, is also navigating EU tariffs with a similar strategy. The company recently revealed plans to begin local production in Europe with its upcoming Polestar 7, a new SUV model slated for sale in 2027.

Like BYD and Chery, Polestar’s move to localize production in Europe aims to sidestep Chinese anti-subsidy tariffs and the 10% import tariffs currently imposed on Chinese-made vehicles in the EU. Polestar has already entered the U.S. market, with local production shared with Volvo at a plant in South Carolina. Both Volvo and Polestar are owned by Chinese automaker Geely. The company has managed a workaround U.S. policies and politics hostile to Chinese automakers.

While full details are yet to be disclosed, the Polestar 7 will likely be manufactured at Volvo’s Ghent plant, leveraging Geely’s scalable SEA platform – also used for the EX30 and other models like the Smart #1, #3 and #5. This move may even open the door for Smart to shift some production to Europe, shielding itself from tariffs on its China-made models and potentially positioning itself for exports to the U.S. as well.

Geopolitical considerations remain crucial in this developing situation. Reports suggest the Chinese government is holding off on any potential acquisition of VW plants until the outcome of Germany’s early federal election on Feb. 23, and until the incoming U.S. administration announces its final stance on import bans for Chinese-made cars. Political approval from both German government officials and trade unions will be essential for such a deal, adding a further layer of political complexity.

China’s government, eager to secure investment opportunities for its automakers in Europe, has rolled out a series of economic openness initiatives. A spokesperson for China’s Ministry of Foreign Affairs emphasizes that these efforts are intended to facilitate business opportunities for foreign companies in China, while simultaneously hoping that Europe will maintain a level playing field for Chinese companies despite the ongoing trade disputes.