WOLFSBURG (Bloomberg) -- Volkswagen Group plans to increase production 60 percent by 2018 in China, where the German company's earnings last year rose by more than 40 percent. Capacity in China will rise to 4 million vehicles a year by 2018 from about 2.5 million currently.
VW targets hike in U.S. sales, China output to counter Europe slump
A new plant in China approved by the supervisory board will build as many as 300,000 vehicles yearly and will start operating in early 2016, CEO Martin Winterkorn said today.
"We will be building a minimum of 10 additional plants in the coming years, of which seven will be in China alone," Winterkorn said in a speech at Volkswagen's annual press conference at its headquarters here.
The strategy for China outlined today would increase the number of Volkswagen's auto plants in the country to 19.
For the Chinese market, Volkswagen aims to start offering a "true budget car" in the coming years. It would cost 6,000 to 7,000 euros, or $7,757 to $9,050.
VW is counting on growth in China and the United States, along with gains in the luxury-car segment with the Audi brand, to help offset declining demand in Europe amid a recession.
In the United States, the VW Group is still targeting sales of 1 million units by 2018. That would include 800,000 VW-brand sales and an annual volume of 200,000 units at Audi.
SUV still on track
Winterkorn reaffirmed that VW is developing a large SUV to widen the Volkswagen brand's range of offerings for the U.S. market.
The model, which would use the new modular design toolkit that debuted with the seventh-generation Volkswagen Golf, was introduced in concept form at January's Detroit auto show as the CrossBlue. It has not yet been cleared for production, but it would continue a re-commitment to the United States that is now "beginning to bear fruit," Winterkorn said.
Volkswagen has projected that its groupwide U.S. operations will return to profitability this year after a $1 billion investment in an assembly plant in Chattanooga, Tenn., that started production two years ago.
"After the success of the U.S. version of the Passat," which has sold 180,000 units since it went on sale in late 2011, Winterkorn said, "the goal is to establish ourselves in another core segment."
Operating profit at the German group's main VW brand, which provides almost a third of group earnings, fell 4.1 percent last year to 3.64 billion euros ($4.7 billion), the company said in its annual report.
The VW brand's German-market deliveries slumped 9.4 percent in the first two months of this year, highlighting the company's exposure to a flagging European economy.
"We have to really put our shoulders to the wheel and give our very best," Chief Executive Martin Winterkorn said at VW's base in Wolfsburg. "The environment is definitely a tough challenge, especially for European car makers."
Profit, revenue and deliveries will probably rise in 2014, with demand growing in all regions, Volkswagen said today. The company forecast in February that operating profit this year will match the 2012 figure, and said first-quarter profit will probably decline as Europe's auto market continues to shrink.
Unchanged earnings in 2013 would mark the first time since 2009 that annual operating profit hasn't risen.
Earnings before interest and taxes rose 2.1 percent to 11.5 billion euros ($14.9 billion) in 2012, VW said last month. The contribution from Chinese operations jumped 41 percent to 3.7 billion euros, the carmaker said today.
"There's still enormous potential in China, but the market has slowed from double-digit growth to single digits, and that will remain so in the future," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "The risk of over-dependence and overcapacity naturally rises with such a plan. It's up to VW to manage that."
EBIT at the namesake VW brand fell 5.3 percent last year to 3.6 billion euros, the manufacturer said today.
The luxury Audi division, the group's biggest contributor to earnings, said earlier this week that operating profit gained 0.9 percent to 5.38 billion euros.
Revenue last year gained 21 percent to 193 billion euros as deliveries, also including the Porsche, Skoda and Seat brands, jumped 11 percent to a record 9.07 million cars, SUVs and vans.
Revenue and vehicle sales will increase again this year, VW said Feb 22. Group worldwide deliveries in the first two months of 2013 rose 8.3 percent to 1.5 million vehicles, it said today.
The manufacturer has a target of overtaking Toyota Motor Corp. and General Motors Co. to become the world's biggest carmaker by 2018.
Volkswagen's market share in Europe rose 1.6 percentage points last year to 24.8 percent as the carmaker's 1.1 percent drop in sales in the region was less than the industrywide decline.
Car registrations in Europe in January were the least for that month since records began in 1990, following a drop to a 17-year low for all of 2012, according to the industry association ACEA.
VW put a revamped model of its best-selling Golf hatchback on sale in September. The company said in January that it's adding shifts at the main plant in Wolfsburg to build more of the car for the European market, and it will expand its factory in Puebla, Mexico, to include production of the Golf's next version in 2014.
Growth last year was also propelled by demand for the U.S. version of the Passat sedan, which VW began building in 2011 at a new plant in Chattanooga, Tennessee, and for Audi's Q3 SUV, which was introduced in October 2011.
VW outlined an investment program for its automotive division in November totaling 50.2 billion euros through 2015, shortening the calendar from the usual five years because of unpredictability in the European car market.
The spending includes 24.7 billion euros to develop new cars and trucks. VW's Chinese joint ventures, which aren't consolidated, will invest another 9.8 billion euros in the period.
Gabe Nelson contributed to this report
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