By on March 15, 2022

Volkswagen Group will be moving some of its European production out of the continent and into facilities located in China and the United States, citing the war in Ukraine as the largest contributing factor. Though if you’ve been following the company, it had already signaled a desire to raise its capacity in China ever since the region shifted into becoming its largest market.

In fact, Chief Executive Herbert Diess said during Tuesday’s press call that China will be taking precedence as the automaker reorganizes its manufacturing.

“We will shift more into China because of the situation in Europe,” the CEO explained, mentioning limited access to parts and raw materials since the war began.

According to Reuters, Diess was also asked how VW would respond when and if China invaded Taiwan. He said he wasn’t concerned, stating that it was his belief China would not launch such an attack.

“China has a high interest to keep borders open,” Diess said. “We think it is an asset for us to be strong in China. China is a stronghold for us.

From Reuters:

The carmaker has suspended production in Russia following the country’s invasion of Ukraine.

A lack of wire harnesses normally sourced from Ukraine was the most significant supply chain constraint at the moment, Diess said, affecting most German plants. If it could not relocate production in 3-4 weeks, its outlook would need to be revised, Diess said.

VW executives have previously hinted that China was becoming their biggest priority and with good reason. The company outsells every other brand on the Chinese market by nearly a million vehicles annually. Volkswagen presently enjoys a 16 percent market share for the region and believes it can do even better as it increases electric vehicle sales over the next several years. Meanwhile, the European zone is highly developed and looking quite beleaguered — especially as inflation stemming from the pandemic has been made worse by the Russo-Ukrainian War.

While that could change once the conflict ends, Diess believes the comedies market will remain extremely volatile until at least 2026. With prices on nickel and palladium soaring, modern EV batteries are seeing massive price increases. But even steel is getting increasingly expensive and the further supplies have to travel, the more expensive they end up becoming. Still, it’s curious to see Volkswagen Group make special mention of the United States when Western Europe typically sees far more deliveries annually.

Regardless, the company said it expects vehicles to become even more expensive this year due to the price of raw materials. It’s also already done some heavy restructuring by cutting overhead in 2021, resulting in roughly $4.4 billion of freed capital. This was after labor union IG Metall accused VW leadership of having grotesquely mismanaged the company for years, risking thousands of German jobs and the company’s own reputation, in 2020.

[Image: Volkswagen]

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