Volkswagen Sacrifices Market Share to Protect Brand Equity Amid China EV Price War

Volkswagen, once the dominant carmaker in China, is now facing significant challenges due to the intense price war among electric vehicle (EV) manufacturers. The company's Group China boss, Ralf Brandstätter, has expressed his willingness to sacrifice market share to protect the equity of his company’s car brands during this period. This decision comes as the company prepares for the launch of a new range of affordably priced EVs built on the dedicated China-only “CMP” platform, which is expected to bring relief next year.

The EV market in China is highly competitive, with 130 brands vying for a share of the EV and plug-in hybrid sales. This oversaturation has led to a situation where almost no one is able to earn a positive return, leaving little room for investment in future technologies. Brandstätter has described the current market conditions as irrational, stating that "China’s car market has lost all reason."

Volkswagen is in the early stages of a new EV product cycle, aiming to increase its total China sales by a third in the mid-term. This would allow the company to fully utilize its installed local capacity of 4 million cars annually. The company's portfolio includes brands such as VW, Audi, and its China-only entry brand Jetta. Despite its challenges in China, Volkswagen remains the world’s second-largest carmaker after Toyota, largely due to its strong presence in the Chinese market, which it dominated for nearly 40 years after entering in 1985.

The intense price war in the EV market was triggered by the bursting of China’s property bubble. In October 2022, Tesla slashed vehicle prices in China, and its decision to double down on this strategy with further rebates helped cement the EV price war that continues today. As a result, Volkswagen has been eclipsed by fast-growing industry leader BYD, which sold 4.21 million cars in China in 2024 compared to Volkswagen’s 2.93 million last year. In 2019, just prior to the “Three Red Lines” housing market reforms, Volkswagen’s total China sales had hit a record of 4.23 million cars.

Despite the low prevailing prices for EVs in China, these vehicles are not cheaply built econoboxes. China’s market features the single greatest array of technologically advanced vehicles found anywhere on Earth. Even brands previously known for consumer electronics, such as smartphone manufacturer Xiaomi, have launched their own high-tech EVs for a relative pittance. Xiaomi's sporty SU7 sedan, which debuted last year, looked and performed so much like a European grand tourer that the company needed to defend itself from suspicions of imitation.

Given the brutal conditions in the market, Volkswagen has declared 2025 to be a year of transition. The company expects to have attractive products that do not need to compete with the likes of BYD and Xiaomi on price alone starting next year. These new models will begin with volume models built on the China-specific Compact Main Platform (“CMP”), potentially including a model sold under its Jetta brand for the equivalent of about €15,000 (about $17,500). The new cars will continue in 2027 with more upscale models underpinned by the China Scalable Platform (“CSP”).

Until then, Volkswagen will not chase after sales with ever-increasing incentives just to move metal gathering dust on dealer lots. Brandstätter claimed that in such an unhealthy market environment, market share is not important. He believes that those only capable of selling their cars through rebates are damaging their brand. Volkswagen serves as a litmus test of a legacy carmaker’s desire to adapt and change with the times as demand shifts from gas-powered cars to EVs defined by their high-tech software features.

Whereas 97% of GM’s consolidated operating profit were earned in North America last year, Volkswagen continues to stake its claim to a leadership role across the entire global auto industry. This includes remaining relevant in the latest technological trends like autonomous ride-hailing, where Volkswagen still harbors ambitions even after legacy rivals Ford and GM have exited the market.