Sales Drop

VW’s Chinese Problem

main 22682520 DPA Gero Breloer – VW Volkswagen China dealership Shanghai man cleaning Chinese signs letters script 2005
China is Volkswagen's single biggest market. Source: Gero Breloer / DPA

Two weeks ago, Volkswagen gave investors a heads-up: its first-quarter operating profit would be higher than market expectations, coming in at €4.4 billion. The German carmaker, the world’s largest, confirmed the number on Wednesday.

Vehicle sales rose 1.3 percent to 2.61 million units and revenue climbed by 10 percent to €56.2 billion. Thanks to the sale of cars with a higher profit margin, such as SUVs and Porsche sports cars, exchange rate effects and cost cuts net profit jumped 44 percent to €3.4 billion.

The figures show the Volkswagen Group seems to have overcome its diesel manipulation scandal. The Wolfsburg-based firm shocked the world in September 2015 when it said it had manipulated 11 million diesel cars, which emit more toxic nitrogen oxide gases than environmental laws allow. It has set aside more than €20 billion to cover fines, buy back cars and repair them.

The carmaker, however, may have a new problem in its single biggest market: China, where it sold 37 percent of its vehicles last year through joint ventures. Sales fell 6.7 percent to 891,549 vehicles in the January-March period. Its luxury brand Audi has been in a dispute with its dealerships in China, hurting sales.

VW itself speaks of “an exceptional situation at Audi due to the strategic reorientation of the brand’s business,”  according to its first quarter earnings report. At the same time, however, VW said the passenger car market had “lost momentum,” affecting demand for its cars.

Dieselgate may be a thing of the past, but VW’s once booming market in China, the world’s largest car market, is a problem now and it might remain so in the future.

VW’s preference shares fell as much as 1.1 percent in Frankfurt and traded down 0.9 percent at €143.05 by 1:10 P.M. The stock had won 4.5 percent since VW released its surprisingly positive earnings statement two weeks ago.


Gilbert Kreijger is an editor with Handelsblatt Global in Berlin, covering companies and markets. Stefan Menzel, who writes about the auto industry and focuses on Volkswagen, contributed to this article. To contact the author: 

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