Will China buy German car factories facing closure to avoid EU tariffs on EVs?

Chinese officials and automakers are eyeing German factories slated for closure and are particularly interested in Volkswagen’s sites, a person with knowledge of Chinese government thinking told Reuters.

Buying a factory would allow China to build influence in Germany’s prized auto industry, home to some of the oldest and most prestigious car brands, the person said.

Chinese companies have invested across a range of industries in Europe’s biggest economy, from telecommunications to robotics, but have yet to set up traditional car manufacturing there despite Mercedes-Benz having two large Chinese shareholders.

Any such move could mark China’s most politically sensitive investment yet. VW has long been a symbol of Germany’s industrial prowess, now threatened by a global economic slowdown hitting demand and creaking transition to green technologies.

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Building cars in Germany for sale in Europe would allow China’s EV makers to avoid paying EU tariffs on electric cars imported from China and could pose a further threat to European manufacturers’ competitiveness.

While bids could come from private companies, state-owned businesses or joint ventures with foreign players, Chinese authorities reserve the right to approve certain investments abroad and are likely to be involved in any offer from early in the process.

Investment decisions would hinge on the new German government’s stance towards China after an election in February, the person said.

The two economies became deeply intertwined during Angela Merkel’s 16 years in office, fuelled by investments and exports from German carmakers to China.

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But relations have cooled as the current coalition pushes to reduce dependence on China. Foreign Minister Annalena Baerbock has described President Xi Jinping as a “dictator”, and China as a rival.

A source from Germany’s foreign office said China had evolved to become a systemic rival.
Volkswagen is exploring alternative uses for its Dresden and Osnabrueck factories under a cost-cutting drive to pare back its German operations. Europe’s biggest automaker, which owns brands including Porsche, Audi and Skoda, has suffered a fall in sales in the face of rising competition from Chinese companies.

VW executives wanted to close several plants but faced resistance from unions. In a deal struck before Christmas they agreed to end production in Dresden, a 340-worker plant making the electric ID.3, from 2025, and Osnabrueck, where 2,300 employees produce the T-Roc Cabrio, from 2027.

VW would be open to selling the Osnabrueck factory to a Chinese buyer, a person familiar with the company’s thinking told Reuters.

“We are committed to finding a continued use for the site. The goal must be a viable solution that takes into account the interests of the company and employees,” a spokesperson said, declining to comment specifically on speculation about an offer.

Chinese companies are concerned about how they would be received by German unions, which hold half the seats on German companies’ advisory boards and seek far-reaching site and job guarantees, the person familiar with China’s thinking said.

Stephan Soldanski, a union representative from Osnabrueck, said workers at the plant would have nothing against producing for one of Volkswagen’s China-based joint venture partners.
“I could imagine that we would produce something for a China joint venture …. but under the VW logo and under VW standards. That is the key condition,” he said.