Investing.com -- Volkswagen (ETR: VOWG_p ) is accelerating its overhaul in China as it struggles to halt a steep decline in the world’s largest car market.
Analysts at Citi Research see signs of a cultural shift inside Volkswagen’s China operations that could help the automaker stabilize its position, even amid fierce electric-vehicle competition.
At the Shanghai Auto Show, Citi analysts observed a renewed urgency within Volkswagen China, a contrast to the stagnation that left European automakers trailing domestic competitors.
VW’s China EBIT is expected to plunge to between €500 million and €1 billion in fiscal year 2025, down 90% from a peak of €4.4 billion in 2015.
Over the past year, vehicle sales have fallen from 4.5 million to fewer than 3 million, and market share has dropped to 9.4%.
The fall reflects intense price competition in China’s electric vehicle market and shrinking demand for internal combustion engine models.
Citi analysts caution that profitability is unlikely to rebound quickly under current conditions, but argue that the scale of the losses has forced Volkswagen to undergo a rapid transformation that could ensure its survival.
After adopting a fully integrated “In China, for China” strategy earlier this year, Volkswagen has ramped up local partnerships and accelerated product development.
It has collaborated with Xpeng (NYSE: XPEV ) on electronic architecture, with Carizon for driver-assistance systems, and strengthened ties with traditional partners SAIC and Anhui.
Within 18 months, Volkswagen China launched several new models with flexible drivetrains developed in sharply reduced timelines. Though not yet market-leading, the company’s faster execution and lower costs mark a significant break from its past.
Volkswagen is also targeting major cost reductions. Localized vehicle development, increased use of lithium iron phosphate batteries, and a new zonal electrical architecture have delivered a 40% cost cut between the MEB and CMP platforms, with a further 10% reduction targeted by 2026.
By shifting to local LFP batteries, Volkswagen expects battery costs to fall by about 50%, with the share of LFP batteries rising to roughly 90% of its China lineup by 2026.
The company plans to launch 30 new energy vehicle models by 2027, including 10 new Volkswagen models in 2026. It believes it can profitably compete at prices below 170,000 RMB ($23,500) with faster, 24-to-30-month development cycles.
Volkswagen is also exploring exports from China to overseas markets, including Southeast Asia and Latin America.
Citi analysts stress that a sharp recovery in profitability remains unlikely in the near term. However, stabilizing operations in China would itself mark a major shift in investor sentiment.
Faster development times, cost-focused platforms, and flexible partnerships could significantly enhance Volkswagen’s global competitiveness.
In spite of the risks, including tariffs and intense competition at home, Citi believes Volkswagen is heading in the right direction, faster than many investors realize, as an earnings base based primarily in Europe provides near-term resilience.