Volkswagen says it won’t cut prices to hold onto market share in China, where sales of its electric vehicles plunged in the first quarter amid intensifying competition.
Europe’s largest carmaker said Thursday that it delivered 141,000 electric vehicles in the first quarter — a 42% increase on the same period last year and accounting for 7% of total deliveries. Meanwhile, sales of plug-in hybrid vehicles increased 9% to 55,756 units. Overall, deliveries climbed 7.5% to more than 2 million units.
The automaker’s earnings were helped by a recovery in sales volumes in Europe and North America, which offset a decline in China.
Sales of all vehicles in Volkswagen’s largest market slid nearly 15% on an “already weaker preceding year,” the company said in an earnings report. “In addition to parts supply shortages, the increasing intensity of competition had a negative impact in the reporting period.”
Volkswagen delivered around 25% fewer electric vehicles than a year ago to customers in China, where its business has suffered from a price war sparked by Tesla
(TSLA).
Over the last few months, Tesla has slashed the costs of its vehicles, pushing the company’s profit margin to the lowest since 2020. It has since reversed some of those cuts, but its most popular models remain cheaper than they were at the start of the year and CEO Elon Musk recently signaled that it’s likely to stick with this strategy.
“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margins,” he told analysts on an earnings call last month.
Volkswagen, on the other hand, indicated that it has no plans to follow Tesla’s example. “We focus on the margin of our business rather [than] on the volume side,” the chief financial officer Arno Antlitz said on a call with journalists.
Deliveries in China, including of electric vehicles, are expected to “recover significantly” later this year, in line with the growth of the car market overall, he added.
Volkswagen has begun work on two major battery factories in Europe, one in Germany and one in Spain. It has picked Canada as the location of a third facility and Antlitz said the company is in discussions with “several countries” as it scouts for potential new sites.
Earlier on Thursday, Volkswagen struck an optimistic note on its future sales. “The group continues to see strong demand, with an order backlog of 1.8 million vehicles in Western Europe alone, including 260,000 [electric vehicles],” it said in a statement.
The company’s bullish outlook on the electric car market chimes with a report last month from the International Energy Agency. The Paris-based organization said it expects sales to grow 35% this year to reach 14 million, accounting for an 18% share of the overall car market.
Volkswagen’s first-quarter revenue climbed 22% on the previous year to €76 billion ($84 billion). Operating profit declined to €5.7 billion ($6.3 billion), from €8.3 billion ($9.2 billion) in the prior period, as a result of the effects of commodity hedging.