-Analysis-
PARIS — Automaker Volkswagen has decided to accelerate its investments in electric vehicles: €180 billion, mainly in the United States and China. The Financial Times has reported that the company’s management evaluated the risk and concluded that China would not invade Taiwan in the short term. It decided as a result that it was reasonable to invest in China, one of its main markets.
It’s an interesting vantage point to undertand events. Governments around the world are questioning China’s intentions towards the island of Taiwan, which Beijing claims as its own. What is less known is that large companies also need to calculate geopolitical risk and conduct their own analyses.
A few months after Russia’s invasion of Ukraine, the President of the European Chamber of Commerce in China, which represents thousands of companies, sounded the alarm in an interview with an economic magazine. Joerg Wuttke mentioned the trauma of Western companies forced to leave Russia and lose everything, and warned Chinese authorities that the same thing could happen if China invaded Taiwan.
According to the Financial Times, Volkswagen’s management therefore believed that an invasion was unlikely “in the short term” due to the damage such an action would inflict on the Chinese economy.
Xi’s logic
It is unclear whether this judgment is based on precise information or an analysis of the rationality of such an attack. In the former case, the German carmaker would be better informed than governments. In the latter, it runs the risk of being a victim of the same illusion as all those who believed that Vladimir Putin would not attack Ukraine because it was not in his interest.
It was not rational from a Western point of view, but Putin has his own rationality. Xi Jinping does too.
In any case, Volkswagen has decided to inject billions of dollars into China, a country that currently accounts for half of its global profits. Volkswagen has been in China since the 1980s and has enjoyed great success.
Worth the gamble ?
It is obvious that Volkswagen’s decision is not solely based on geopolitical considerations. China has not only become the world’s largest automobile market, but it has also taken the lead in electric vehicles.
Volkswagen has decided that it is impossible for it not to stay in the race in the Chinese market.
China has practiced what is called the “leapfrog,” which means that instead of exhausting itself in catching up in the previous technology, it goes directly to tomorrow’s technology. For years, it has built an integrated chain, from the control of African minerals to battery manufacturing and then to automobile production.
So, Volkswagen has decided that it is impossible for it not to stay in the race in the Chinese market and has attempted to evaluate the geopolitical risk. It remains to be proven whether Chinese leaders share the same rationality as the German company’s management.
It is a multi-billion dollar gamble.
