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Audi Aims to Invest EUR3 Bil. in China over Next Five Years
Published: 3/19/2012
Audi plans to invest EUR3 billion in China over the next five years to increase sales by expanding its product line-up, production facilities and dealerships as well as starting production of plug-in vehicles in China.
IHS Global Insight Perspective | |
Significance | Audi now counts China as its largest single market and aims to raise penetration in the country with more dealerships and locally produced models. |
Implications | Audi aims to incorporate more local production in China, including the production of hybrid vehicles and their components as the government pushes international automakers to focus on developing and producing components in China, not just finished vehicles. |
Outlook | Audi sold over 300,000 units in China in 2011, rising over 37% year-on-year and plans to introduce seven new models this year. In 2015, it will begin production of the A6 plug-in hybrid. |
Audi, a division of Volkswagen (VW), aims to increase investment in China, which is its largest single global market. According to a report in the China Daily newspaper, the German automaker will invest EUR3 billion (USD 3.9 billion) in China in the next five years. The report quotes Audi chairman Rupert Stadler saying that the investment will go towards introducing a slew of new products into its FAW-VW joint venture (JV) in China.
New Models for China
Audi aims to introduce seven models to China this year. it currently produces the A6L, the A4L sedans and the Q5 sport utility vehicle (SUV) in China and imports the A8 and A7 sedans, the A3 hatchback and the TT, R8 roadsters and Q7 SUV. This month, Audi began sales of the imported A5 family of cars, with speculation in the industry mounting that the automaker could be looking to produce the A5 in China (see China: 5 March 2012: Audi A5 Launched in China).
The new models will include the new A6L which will be locally made, imported models of the Q3 SUV, and high-performance cars. Audi will also begin production of the A3 in China in 2013 at its new plant in Foshan in Guangdong province, while the Q3 will begin production at the plant in Changchun. Audi aims for annual production capacity of 700,000 cars in China by 2015, up from 300,000 units at present.
Plug-In Hybrid to Be Produced in 2015 in China
Michael Dick, Audi's board member for technical development, told the China Daily during the recent Geneva Motor Show that Audi plans to produce the all-new A6 plug-in hybrid long-wheelbase sedan in China in 2015, making China the model's debut market. More importantly, he said Audi will also make spare parts for the A6 plug-in hybrid in China. "China will be the test market for the long-wheelbase A6 plug-in hybrid. Based on market feedback, we will decide to choose the long wheelbase or normal wheelbase version of the model for other markets," Dick said.
More Dealerships in China
Audi currently has 237 dealerships in China, but aims to double this by end 2013. "We're planning to nearly double our dealer network in China by the end of 2013. For sustainable success, you need to have an understanding of the market, and must also develop and produce your products there," Stadler is quoted as saying by the China Daily. Peter Schwarzenbauer, Audi's board member for marketing and sales, said: "We have just scratched the surface in China. We still don't have a foothold in lots of big cities with a population of above 1 million."
Outlook and Implications
Audi has seen strong growth in China and aims to further increase sales in what has become its largest single global market. The automaker enjoys a high status in China stemming from its locally produced models being favoured by government officials. Recent declarations by the Chinese government state that although there is a new list specifying models to be purchased by the federal fleet, "leaders" of the Communist Party of China are still entitled to locally produced premium cars such as those built by Audi (see China: 9 March 2012: Chinese Communist Government "Leaders" Still Entitled to Audi Cars).
Production will initially increase when the new FAW-VW plant in southern China's Guangdong province begins production of the A3 in mid-2013. The plant in Changchun where the A6 and A4 and Q5 are produced is also being expanded (see China: 2 December 2011: FAW-VW to Establish New Facility in Chinese City of Foshan to Build Audi A3). Despite the overall auto market in China slowing down, Audi is still seeing strong growth in China and a more diversified consumer base as well-heeled Chinese buyers continue to favour the German brand (see China: 24 August 2011: China's Premium Car Market Set for Huge Growth).
Audi is bowing to local government pressure by introducing the plug-in hybrid version of the A6 in 2015. The automaker, like Toyota, is likely to import core components to begin with but will eventually localise development to make the hybrid cost-effective as well as appease the Chinese government, which wants to raise the standard of technical know-how in China.
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