Volkswagen’s Skoda Auto sees easing chip crunch spur output recovery

Skoda Auto is aiming to boost output to pre-pandemic levels in the next two to three years as the Czech Republic’s largest manufacturing company sees the worst of chip-supply difficulties behind the automotive industry.

The global situation with semiconductors is “getting much better,” chief executive officer Klaus Zellmer said in an interview in Prague. Combined with booming sales in Europe and an expansion in Asia, the Volkswagen’s unit is seeking to gradually raise annual deliveries to at least 1 million cars, from 731,300 last year.

Zellmer’s optimism bodes well for the Czech economy, which is dominated by the automotive industry and is emerging from a mild recession that was largely spurred by shortages of imported electronics and materials. After output at Skoda jumped 13 per cent in the first quarter from a year earlier, the country’s biggest exporter and private employer predicts the supply-chain issues will continue to ease in the coming months.

“We expect a more stable supply of semiconductors in the second half of this year, giving us the chance to fully use our production capacity,” said Zellmer, who became the company’s CEO last summer. “A million cars per year is the number we want to get back to within the next two to three years.”

Despite factory outages and the VW group’s production shutdown in Russia after the invasion of Ukraine, the Czech company has remained profitable thanks to rising car prices and the brand’s increasing focus on sales and manufacturing in Asia. In 2022, India became its third-biggest market with deliveries jumping 128 per cent from the previous year, while next year Skoda plans to start an assembly line in Vietnam that could also ship to the rest of South-east Asia.

Besides expanding to new markets, the 128-year-old brand plans to invest 5.6 billion euros (S$8.1 billion) by 2027 in a transition to electric vehicles ahead of the European Union’s sales ban on combustion engines after 2035. The government in Prague is also lobbying VW to locate a new European battery plant in the Czech Republic, hoping this could boost the local economy and curb the carmaker’s dependence on imports from Asia.

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Zellmer says the proposed site outside the western city of Plzen is a “good spot” within 200 kilometres (124 miles) of several Skoda and VW plants, minimising the carbon footprint of shipments. The decision on the location will also depend on incentives provided by the EU’s proposed Green Deal Industrial Plan, and on the price of electricity, according to the CEO.

“The Czech Republic is still in the race,” he said. “We need to bring that part of the value chain to the Czech Republic.”

While companies including Skoda accelerate EV production, they’re also pushing for changes and a delay in EU’s plans to impose in 2025 stricter and more comprehensive pollution limits for conventional vehicles, known as Euro 7.

The proposed new standards would require the industry to invent currently unavailable technologies, which could make cars so expensive that drivers will simply stay in their older and less ecological vehicles for longer, according to Zellmer.

“It doesn’t make sense to invest so much money into this that you otherwise could put into developing a battery-electric vehicle,” he said. “I’m optimistic that the industry will get a postponement.” BLOOMBERG