00:00With us, I'm joined now by David Bailey. He's Professor of Business Economics at Birmingham Business School.
00:05Hello, David. Always lovely to chat to you.
00:08You know, Volkswagen is under pressure on so many different fronts.
00:13We've seen one example of how they might try and reinvent themselves.
00:16But just how much trouble are they in?
00:20Big trouble, in the short answer.
00:22There's a perfect storm in the auto industry.
00:25Volkswagen had previously made huge amounts of money in China.
00:30Now it's having to compete with fantastic Chinese brands.
00:34Those Chinese brands are also entering the European market and, in many cases, out-competing Western firms.
00:41Volkswagen has the cost of making the transition to electric vehicles.
00:44And on top of all of that, it's been hit by tariffs from the US, the cost of which could
00:48be a £5 billion hit for the firm this year.
00:51So put all that together, and we've seen a €5.9 billion loss in the third quarter, largely pulled down
00:58by that big write-down on Porsche.
01:00But even so, its underlying position is pretty poor.
01:04We're also seeing this issue of the EV batteries being recalled.
01:08I was reading quite alarmingly that some of their EV batteries, if you charge them over 80%, they could catch
01:14fire.
01:15It doesn't exactly inspire confidence in the marketplace, does it?
01:19No, it doesn't at all.
01:21Especially when some consumers are hesitant about making the transition.
01:26Some potential EV drivers will pick up on this and think, let's just wait a while.
01:31And also, it's a big contrast with many Chinese brands who don't just compete on price, but also quality, including
01:38battery quality.
01:40So if we look at some Chinese brands in the market now, they offer fantastic technology, which, in many cases,
01:45out-competes European firms like Volkswagen.
01:48So this is bad news for the company.
01:51It may well dent take-up of electric vehicles from the firm going forwards.
01:54It was interesting a little earlier, Chinese brands in China are so fiercely competitive with each other.
02:02And there is a big push away from imported car brands in China, isn't there?
02:08Very much so.
02:09In fact, you look at Volkswagen, their sales are down by 30% in the first sort of nine months
02:16of this year compared to the previous time last year.
02:19That's a huge hit.
02:20And companies like Volkswagen, in particular their premium brand, Audi, have been making huge amounts of money in China.
02:27Those days are long gone.
02:29Chinese brands are now very, very competitive.
02:31In many cases, they offer great technology.
02:33And I think there's been a kind of fundamental mindset change amongst Chinese consumers who would previously go for Western
02:41brands.
02:42That's no longer the case.
02:43They go for technology.
02:44And they're not so bothered that it's a Chinese brand.
02:47The other big thing is that Chinese firms innovate very quickly and they bring out new cars much more quickly
02:53than the likes of Volkswagen.
02:55So the competitive pressure there now is huge.
02:57Stellantis and Renault have done better.
03:00Are there lessons in how to survive this or how to reinvent in this time of incredible revolution?
03:07Yeah, that's a good question.
03:09I don't think there's one answer.
03:10But we can look, for example, at Renault who have been able to bring low-cost electric vehicles to the
03:16market.
03:16They are very, very stylish.
03:18The Renault 5 harks back to the old model and uses some of the design cues from that and has
03:25packaged together an attractive car at a decent price.
03:29And they're taking market share because of it.
03:31Stellantis, meanwhile, they've got struggles as well.
03:35But they've been able to share costs across brands, eliminate duplication, and look to cut costs.
03:41So there isn't one answer, but I think it's about coming up with the right product, getting your costs down,
03:48and innovating quickly and bringing new product to market.
03:51Yeah, agility and fast-moving decisions are always so important.
03:54Thank you so much, David Bailey, Professor of Business Economics at Burnham.
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