The Chinese zodiac is composed of 12 year cycles, with a different animal each year. We have now entered the year of the Dog, but for Volkswagen it is the year of the SUV, globally but mainly in the Chinese market, where VW sells more than half of all the cars it builds and where the new Touareg had its worldwide reveal. And in just two years we will enter the decade of the electric.

It was not by chance that VW leapfrogged the Geneva Motor Show and kept the Touareg III world premiere for China, just three weeks later. After all, this is by far its main global market to such an extent that last year half of the 6.23 million vehicles sold with a VW logo are being driven on Chinese roads. "Actually our 13% share of the market in China is similar to what we have in other regions of the Globe... but, of course, 13% of 24 million are more than 3 million vehicles sold annually in just one country... and that number is unmatched by us or any other car brand anywhere in the world," says Herbert Diess (VW CEO) during our little chat at the end of his presentation. It all happened on a huge stage where in the presence of some 1000 guests (including 700 Chinese journalists and 100 European journalists) he was joined by new Touareg and another ten SUVs that will reach the world's largest car market in the next 12 months, some of which are known in other latitudes, others specific and produced in cooperation with two local manufacturers, with whom VW has two successful joint -ventures (SAIC and FAW).

The Chinese car market figures are always astonishing and enough to leave your eyes slanted and the same is true about the presence of VW in this country of 1.4 billion people. The first car VW sold in China was the Santana in 1985; today there are no less than 25 VW nameplates there (9 built with FAW, 9 produced together with SAIC – all of which locally produced with these domestic manufacturers - and 7 as import cars). All in all there are eleven VW production facilities in China and three headquarters, one for each joint venture (FAW-VW in Changchun and SAIC-VW in Shanghai) and one for VW on its own (Beijing) and 2150 dealers in activity to meet an increasingly demanding consumer with an average age of just 30 years (in Germany the car buyer´s average age is 50).

Even though VW is totally aware of how strong its dominance has been for the past three decades it does not want to let go the firm number 1 spot and the growth plans are ambitious and very concrete, based on two vectors: NEV (the so-called New Energy Vehicles, i.e. battery electric and plug-in hybrid) and SUVs. Let's look at each of these vectors.

The Chinese market is already, by far, the largest in the world for electric vehicles and plans are being drawn for this reality to intensify. The Beijing government has set a minimum quota of 10% of NEV vehicles out of the total market by 2019 (2.4 million NEVs) and 12% by 2020 (2.9 million), which will be instrumental to achieve the target of an overall new vehicles sales average consumption of 5.0 litres/100 km, that will still equipped with petrol engine (ICE: Internal combustion Engine) in its vast majority. To achieve this, a system of credits has been defined for the manufacturers who operate there: in order to produce 3 million ICE cars in China every manufacturer has to be able to collect 320,000 credits, meaning it also had to build battery electric vehicles with more than 250 km driving range and plug-in hybrids with at least 50 km 100% electric driving range (in the first case a manufacturer gets 4 credits for each built car, in the second case each unit is worth 2 credits). In fact, the estimated new car sales growth in China in the short/medium term is based on the increase of NEV sales: the 24 million registrations of 2017 will be kept with no great variation but the surge to the expected 30 million cars/year in 2020 and to the 35 million (2025) should actually come from adding electric vehicle sales. And we will never stop being amazed with what´s to come: according to VW marketing studies, by 2025 more than 2 out of every 3 (70%) new NEV vehicles sold on a global scale will get their license plates in China, with Europe in the far distance with just 23% and North America (or should I say California...) with the remaining 7%. VW plans to start commercializing 10 NEV vehicles (based on the MQB platform) by 2020 and another 10 electric vehicles (based on the MEB technical base) between 2020 and 2025. All in all, the German brand wants to sell slightly over 1 million EV cars globally by 2025, 650 000 of them in China.

The other growth vector is, as I said, that of SUVs. In 2017, for the first time, more SUVs than sedans were sold in China (45% vs. 43%, respectively, when five years before those quotas were 13%-62%), reflecting the exponential increase in demand and supply for this vehicle silhouette (in 2012 there were 61 SUVs on sale in this market, today there are 469). The German brand only sells three SUVs models in China (of which it sold 400,000 units in 2017), T-Roc, Tiguan and Teramont, but will expand the range with 10-12 new additions by 2020 (included in the 38 new models VW plans to release in this region in that timeframe), some of which were shown in the flesh for the first time on that stage that served for the worldwide reveal of the new Touareg.

Trust me: SUVs, electric cars and China are here to stay and will pretty much dictate who will be the winners and the losers in the long run.

Joaquim Oliveira

Joaquim Oliveira

European Car of the Year Jury Member

May 8, 2018 Columns › Joaquim Oliveira photo: Joaquim Oliviera

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