VW warns of plunge in China demand if tax cut lapses

[BEIJING] Volkswagen AG said that industrywide demand in China will plunge if a tax cut that's due to expire at the end of the year is allowed to lapse.

The German automaker is in talks with both the government and the China Association of Automobile Manufacturers to find out whether the tax cut will be extended, said Volkswagen China chief Jochem Heizmann.

Volkswagen Group delivered a record 1.86 million vehicles across its brands in the first half in China and Hong Kong, after the government cut the tax on purchases of models with smaller engines to 5 per cent from 10 per cent.

"If the government really stays on their present decision that this will sharply end at the end of this year, you can expect a big negative impact on the first quarter next year," Mr Heizmann, who's a member of Volkswagen's board, told reporters in Beijing on Wednesday.

China has been a bright spot for Volkswagen, which has been embroiled in a global crisis related to its use of cheating devices to meet emissions standards with its diesel models.

The automaker sells few diesel models in China because the government discourages use of the fuel with the exception of commercial vehicles.

Heizmann said Volkswagen will stick to its 4 billion euro (S$5.9 billion) investment plan for China and introduce a larger sport utility vehicle model at the end of this year.

Volkswagen also plans a smaller, less expensive SUV offering in the coming years, he said. The company needs to sell more electric vehicles in order to meet China's fuel-economy targets, he said.

Profitability is normalising for Volkswagen in China amid rising competition, said Mr Heizmann.

BLOOMBERG