Five Months Later
Addendum to “With Friends Like These, Who Needs Enemies”
In May Volkswagen was market leader in China, and the Minister-President of Lower Saxony wanted to bring the successes from Hefei to Europe. In October the success has vanished. Hefei has remained, and it now supplies the world.
I. What was said in May
In “With Friends Like These, Who Needs Enemies” we described in May 2026 how Olaf Lies ran into an aporia on Markus Lanz’s talk show. Volkswagen had once again become market leader in China with cars developed in Hefei and built in China. Lies, as Lower Saxony’s representative on the supervisory board, openly admitted that planning, development and research were migrating to China and were taxed there too. His answer was a proposal: models developed in China should be “localised” in Europe, that is, final assembly should come here, with parts from China. What the German voter would gain from this, he could not say.
II. The success is gone
Five months later nothing is left of the success. The Chinese car market shrank by 21 per cent in the first nine months of 2026, by 28 per cent in September alone. State purchase incentives have expired, the tax exemption for electric cars has been halved, and a price war has pushed average prices down by a fifth in two years. Combustion cars, with which Volkswagen earns its money in China, are hit hardest. The group delivered 30 per cent fewer vehicles there by September. Its China chief Ralf Brandstätter has cut the target for 2030 from 3.2 to 2.2 million cars a year and says: “China is no longer a growth machine.”
III. Hefei stays and grows
One might expect Volkswagen to withdraw from China now. The opposite is happening. The strategy “In China, for China” becomes “In China, beyond China”. In Hefei, the group’s largest development centre outside Germany, more than 3,000 engineers are at work. A new model takes three years or less there; in the group’s traditional development it took five to six. The electronics for it were developed by Volkswagen together with the Chinese manufacturer Xpeng.
And Hefei exports. Cars from China are already going to the Middle East and Central Asia, with Southeast Asia and South America to follow. These are exactly the markets into which Volkswagen must move to offset the slump in China, and exactly the markets that could keep German plants busy. The German sites no longer compete with Toyota or BYD. They compete with their own group, and they are losing.
IV. Localisation in reverse
Lies wanted Chinese models assembled in Europe. Instead Volkswagen assembles them in China and delivers them to the world. Europe has so far been excluded. The group justifies this not politically but technically: electronics and software would have to be different for Europe. But a technical obstacle is a question of time. Once it has fallen, only price will decide about Europe as a location, and we know what that price is.
How quickly that can happen became clear on 29 October 2026. The Frankfurter Allgemeine Zeitung reported that the board around Oliver Blume was openly considering building entire cars from the Chinese joint ventures in Zwickau. Lies’s proposal would thus have become group planning: development and parts from China, final assembly in Germany. In the same plant Volkswagen is currently setting up a centre in which old cars are taken apart, around 15,000 a year by 2030. Zwickau would then assemble Chinese cars and dismantle German ones.
The tariffs the EU imposed on Chinese electric cars in 2024 would then, incidentally, hit Volkswagen itself. The protection Europe grants its car industry would become a levy the group pays at its own border.
V. The second friend
On 24 October 2026 Audi chief Gernot Döllner stood on one of Donald Trump’s campaign stages in Georgia. Audi is building its first plant of its own in the United States there, for around four billion dollars, with up to 4,500 jobs. According to Reuters, US tariffs had cost Audi around 1.2 billion euros the year before. In March 2025 Audi had announced that it would cut up to 7,500 jobs in Germany by 2029. The Volkswagen group as a whole intends to cut 35,000 jobs in Germany by 2030.
Audi stresses that Germany and Europe will remain the company’s industrial backbone. That may be sincerely meant. But the new plants are being built in Hefei and in Georgia. Georgia mainly replaces imports from Slovakia and Mexico, not German plants directly. Why none of the new plants is being built in Germany, however, is explained by one figure: according to a study by Oliver Wyman, the labour in a car costs two and a half times as much here as in the United States and five and a half times as much as in China. And according to The Pioneer, Georgia and Washington are paying around a quarter of the plant.
VI. The bill
The state of Lower Saxony sits on Volkswagen’s supervisory board and, under the Volkswagen Act, holds a blocking minority. For decades the German taxpayer has helped carry the car industry: with short-time work allowances in every crisis, with the scrappage bonus of 2009, with purchase premiums for electric cars. Not least, he thereby made possible the profits with which plants are now being built in Hefei and Georgia.
If the group survives and the location does not, then the country has paid for the friend who is leaving it. This is no accusation against the managers. They do what a group does that sees its home location only as a cost centre. No law forces them to, as we showed in “The Second Finding”. It is an accusation against a politics that sits on the supervisory board with a fifth of the votes and had nothing else to propose than the final assembly of Chinese models.
In May, Kerstin Münstermann asked on Lanz’s show what the German voter would gain from all this. Five months later the answer is: the bill.
Back to the essay: With Friends Like These, Who Needs Enemies · Further reading: The Rental Software · The Closed Loop · Will Europe Become Asia’s Appendix? · The Second Finding · Friendship among Brothers in Arms