Germany's VW is looking to increase capacity by building its 14th plant in the world's largest auto market.
State bodies in China have reported that Volkswagen AG, Europe's third-largest automaker, is looking to invest 10 billion yuan ($1.6 billion) in a new facility in the southeastern city of Changsha, Hunan province. The plant will be Volkswagen's fourteenth in the developing economy and could boost the company's production by more than 10% and is part of the company's 123 billion yuan ($19 billion) expansion plan.
Last year, the government approved two new facilities in Zhejiang and Xinjiang provinces which will have a combined annual capacity of 350,000 vehicles upon completion in late 2013. In comparison, the new plant would produce up to 300,000 a year, raising the car giant's capacity well above its current annual production figure of 2.4 million vehicles.
Jochem Heizmann, the newly appointed chief of Volkswagen China, sees “vast growth potential” in the region and expects to see consistent growth of 7-8% a year for the next few years. In a recent interview with Automobilwoche, Heizman did not believe that increasing capacity to as much as four million units a year by 2018 – almost double the current amount – would lead to overcapacity and saturation, as smaller and medium-sized cities would create demand to mop up any surplus. With a 24% growth in sales in September, it is clear why Heizmann is so bullish on China.
Not all commentators are as optimistic, however. Jochen Siebert, managing director of Shanghai-based JSC Automotive Consulting, warned VW is risking overcapacity if it goes ahead with the Changsha plant. “If Volkswagen asked me”, says Siebert, “I would say 'don't build this plant' because you don't want to have overcapacity. We have extreme competition already.”