Volkswagen’s controversial Xinjiang plant sale signals strategic shift in China

Volkswagen’s (VW) sale of a controversial plant in China will come as a relief to the German carmaker, as it rationalises its flagging operation amid cutthroat competition in the world’s largest automotive market, industry observers say.

The divestment could see international carmakers reduce their capacity by as much as 10 million units on the mainland as they continue to lose market share to more nimble local electric vehicle makers amid an accelerated pace of electrification in China, according to UBS.

“By selling the plant in Xinjiang, VW can quell fears about political risks and cut excess capacity to adapt to a changing market where its petrol vehicles are no longer easy sales,” said Qian Kang, who owns car-component businesses in eastern Zhejiang province. “After all, the factory has been idle over the past five years.”