VW shifts output to North America, China as Ukraine war dampens outlook

BERLIN -- Volkswagen Group is shifting more production to North America and China as a result of the Ukraine conflict and will prioritize China this year, CEO Herbert Diess said.

"We will shift more into China because of the situation in Europe," Diess said.

When asked about how the automaker would respond in the event that China attacked Taiwan, he said that he did not believe the country would take such a step.

"China has a high interest to keep borders open," Diess said. "We think it is an asset for us to be strong in China. China is a stronghold for us.

In light of rising instability in Europe, boosting sales in China is an even higher priority than before, Diess added.

VW currently has a 16 percent market share in China and aims to double battery-electric car sales in the country this year.

Diess said a lack of wiring harnesses from Ukraine has overtaken a shortage of semiconductors as the automaker's biggest supply chain headache, affecting most German plants.

If VW could not relocate production in 3-4 weeks, its outlook would need to be revised, Diess said at the automaker's annual press conference on Tuesday.

Diess said commodity markets are likely to remain volatile until 2026.

Russia's invasion of Ukraine has caused prices of materials key to car production, such as nickel and palladium, to soar.

VW finance chief Arno Antlitz said rising raw material costs will drive up prices for both electric and internal combustion engine vehicles, with everything from batteries to catalytic converters set to become more expensive.

The automaker cut overhead costs ahead of schedule last year, leading to 4 billion euros ($4.4 billion) of benefits compared with 2019, he said.

Antlitz said Porsche's potential initial public offering could still happen as soon as the fourth quarter of 2022, despite current market uncertainties.

In Western Europe, VW Group's VW, Audi, Porsche and Skoda brands have been forced to reduce output after suppliers including Leoni stopped production of wire harnesses made in Ukraine.

Diess said VW is building up additional capacities for wiring harnesses for Europe, as well as shifting some car production to regions such as China and the Americas in response.

Last year, global vehicle sales for the multibrand group, which includes VW, Porsche, Audi and Skoda, declined by 6.3 percent to a 10-year low of 8.6 million in 2021 because of microchip shortages.

Operating profit doubled to 19.3 billion euros ($21.1 billion) despite lower deliveries, helped by higher prices and a more favorable product mix.

VW expects to increase deliveries by 5 to 10 percent in 2022 and boost revenues by 8 to 13 percent, even with ongoing troubles in the supply chain.

VW has suspended production in Russia.

The automaker has a production site in Kaluga, Russia, as well as sales units and financing companies in the country that it said could be adversely affected by further sanctions on Moscow. VW said it does not have subsidiaries or equity investments in Ukraine.

Still, business activities of the group in Russia and Ukraine were not significant, VW said.

VW said it could have sold significantly more cars but was hindered by the ongoing semiconductor shortage.

The VW brand returned to profit in North and South America, the company said.