Volkswagen AG said Friday it will invest €4 billion ($5.83 billion) in increasing production and capacity in China by 2011 in a bid to keep pace with soaring demand.
"Demand for our models is growing so dramatically that our capacities in China are no longer sufficient," Volkswagen Chief Executive Martin Winterkorn said in a statement.
China has proved to be one of the very few bright spots for global auto makers as the industry has been battered by a steep downturn. Chinese demand for cars continues to grow further, helped by a wide-ranging economic stimulus package.
In the January-to-August period, passenger vehicle sales in China jumped 37% to 6.23 million units, according to the China Association of Automobile Manufacturers, while total vehicle sales rose 29% to 8.33 million units.
"The monetary and fiscal measures taken by the government have provided positive impetus for the Chinese automobile industry," Volkswagen said. A move to halve the purchase tax on cars with 1.6 liter engines and under to 5% particularly helped lure car buyers into showrooms. However, analysts say this pulls forward future demand and sales may collapse when the full tax is reinstated at the end of 2009.
Volkswagen's sales in China rose 23% in the first half of the year to 652,436 vehicles -- more than the 633,091 vehicles the company sold in Germany over that period.
"In China, we will see clear double-digit growth in 2009 and expect to remain the market leader in the future," said Winfried Vahland, president of Volkswagen's Chinese operations.
Mr. Vahland said the company was "well on its way to reaching the target of doubling sales to two million vehicles laid down in our Strategy 2018 earlier than planned."
The investments would be financed from the cash flow of Volkswagen's Chinese joint venture companies, the Wolfsburg-based auto maker said in a statement. Production at its Nanjing and Chengdu plants would be boosted to between 300,000 and 350,000 units in each case by 2012.
From that year on, three new models are set to be produced at the Nanjing plant and two new models at the Chengdu facility.
Its large footprint in China, which was helped by an early market entry, helped Volkswagen to steer better through the industry gloom than most of its rivals and remain profitable.
In addition to its strong presence in growth markets such as China and Brazil, Volkswagen, Europe's largest auto maker by sales, has a relatively small exposure to North America. The sharp downturn of the U.S. market in recent months ahead of the cash-for-clunkers initiative added fuel to the fire for many global auto makers, including Japan's Toyota Motor Corp.
As part of Volkswagen's Strategy 2018, the German car maker aims to outpace Toyota as the world's biggest auto maker.
