Gasgoo.com (Shanghai June 5) - Shanghai Volkswagen signed an agreement with the government of Ningbo, Zhejiang in the neighboring city of Hangzhou to increase investment and expand production, 21st Century News Group reported today. The news comes on the heels of a foundation laying ceremony by fellow VW-affiliated joint venture enterprise FAW-VW to inaugurate second phase expansion of its Foshan production site.
Last week, Zhejiang Provincial Committee Secretary Xia Baolong, SAIC Motor President Chen Hong and VW China Executive Vice President Dai Shilin signed a coordination agreement in Hangzhou, Zhejiang to increase investments in the province and strengthen cooperation (pictured). The day after the agreement was signed, Shanghai VW officially began work on the expansion project for its Ningbo production site in the Hangzhou Bay New Zone.
According to the agreement, Shanghai VW will invest a total of 15 billion RMB ($2.43b) in the expansion project, which will expand the Ningbo factory's annual production capacity by 300,000 sedans and 100,000 commercial vehicles. The project's first vehicles are scheduled to begin rolling off the assembly lines beginning January 2016. After the project's completion the site will be able to manufacture a total of 700,000 vehicles per year.
Following the official opening of its Ningbo factory last October, Shanghai VW's total annual production capacity totaled 1.75 million vehicles. Following the completion of this expansion project, that figure will break the two million barrier. Similarly, FAW-VW's total annual production capacity is set to pass the two million vehicles mark following completion of the second phase expansion project at its factory in Foshan, Guangdong.
Taking advantage of GM CEO Mary Barra's visit to China in February, VW announced that month that it will invest eight billion RMB ($1.29b) to construct a new factory in Hubei's capital of Wuhan with an annual production capacity of 600,000 vehicles.
VW's numerous expansion projects in China are all part of its efforts to become the world's leading manufacturer by 2018. VW's fiercest competitors when it comes to fulfilling this goal without a doubt are Toyota and GM, the former which is strong in North America and the latter in China. Those two manufacturers respectively sold 9.98 million and 9.71 million vehicles worldwide in 2013; by comparison, VW's total sales for that year totaled 9.73 million vehicles, just slightly ahead of GM and well behind Toyota. VW has had a hard time breaking into the Japanese market, traditionally held by Toyota and other local manufacturers. In order to surpass Toyota, VW will have to increase its already high sales volumes in China, one of the strongest markets worldwide, as well as increase its performance in the US, where VW plans to sell 800,000 vehicles in 2018.
As for the Chinese market, VW is following the strategy laid out by Jochem Heizmann, in which it will continue annual investments of 30 billion RMB ($4.86b) in its two Chinese JV companies to increase production and develop new products. VW China's total annual production capacity is expected to reach four million vehicles by 2018. As for new products, the Shanghai VW JV alone will release seven new models, including a brand new Passat, Lavida, a new Tiguan and a successor to the Touran, as well as a brand new compact, compact SUV and subcompact sedan.
Expansion at the Ningbo factory is only the first step for VW. Shanghai VW Sales and Marketing Executive Director Jia Mingdi previously stated that Shanghai VW aims to sell three million vehicles in the country by 2020. Even when this current expansion project is completed the JV's production capacity will still not be enough to meet this goal. It will still need to continue to find ways to boost production.
Last year VW sold a total of 3.27 million vehicles in China, surpassing GM's 3.16 million vehicles to reclaim its position as the country's best performing automobile manufacturer in terms of sales. VW CEO Martin Winterkorn stated that he expects his company to achieve sales growth of over ten percent in China this year, compared to the eight to ten percent growth forecast by rival GM.
