Skoda is a star performer within the Volkswagen Group, consistently delivering margins of about 8 percent. Its biggest issue is a lack of production capacity, which will get worse next year when Skoda launches the replacement for its best-selling car, the Octavia compact model. Without more capacity Skoda will miss out on more than 100,000 additional sales next year, CEO Bernhard Maier said. He spoke about this as well as how the brand is coping with falling demand in China with Automotive News Europe Correspondent Nick Gibbs.
Skoda needs more capacity. What's the latest with the new VW Group multibrand factory that may or may not be built in Turkey?
The plant is on hold, so, we are now searching for alternatives to bridge the gap. We have already decided to produce some Karoqs [Skoda's compact SUV] at [VW's plant in] Bratislava starting next year. What we really need, however, is a sustainable business case. It does not make sense to do something that is only valid for one or two years. This is not easy. To be as effective as possible and benefit from all the [VW Group] synergies, I need a capacity of at least around 100,000 vehicles elsewhere in the group.
Could you sell an additional 100,000 cars a year if you had the capacity?
Yes, and it's even more right now.
Is this driven by any particular model?
It's across the entire range. In some countries we have really a great market share. For example, Israel, where we have more than 8 percent. In the Czech Republic we have a share of more than 30 percent. In some eastern European countries we are close to that [30 percent]. But there are still some markets, especially in southern Europe, where we could do more if we had the capacity.
VW Group CEO Herbert Diess wants Skoda to position itself more as a budget brand, German media reported. What is your response?
We have a brand strategy that we sharpened just two and a half years ago that is working. There is no need for change. But, in a multi-brand organization it's quite common to check whether the position of the brand and the products we are going to offer will achieve the maximum possible results for the entire group. This is something we did again recently and Herbert Diess himself said during the launch of the new Golf that there is no need to reposition the Skoda brand. We are perfectly positioned.
What is your brand position compared with the VW marque?
We stand for value for money. Having factories in the Czech Republic [where wages are lower than in Germany] is to our advantage. We are passing this advantage on to our customers in terms of price and value positioning. We are the roomiest. We have a high reliability. We have the best residual values and the quality is perfect. All of this is combined with our expressive crystalline design language. I think we are on a perfect path. We are profitable and cover our investments using our net cash flow. The only thing we are missing is capacity.
Won't electrifying your lineup change your brand position?
It's true. This will change. We have to accept that on a worldwide scale individual mobility will become more expensive because of the huge amount of new technology that we have to bring into the car to meet safety, emissions and other regulations. You will see when the new regulations come into play over the next one to two years. It will be a huge challenge not only for the manufacturers but also for our customers.
How will you get people to pay the higher prices of EVs?
Let's cross that bridge when we come to it. We need a substantial business case for everything we do. We are not about to incur losses to achieve this because that would be ridiculous. At this moment, having the latest figures in mind, I am sure we are coming up with an offer that will convince our customers, too.
If your capacity in Europe is constrained, how will you increase sales of the new Octavia?
We are limited in Mlada Boleslav because we are at the maximum capacity there, but we are also producing the car in Russia, where we have seen huge gains in the last couple of months. We are growing by double digits there, which is great and the new Octavia will be well-received there. It will also be made in China starting late next year.
Skoda's China sales are falling. How will you change that?
The Chinese market is enduring a lot of challenges but I'm sure it will overcome them. We are used to these cyclical developments in this industry. Now is the time to decide on a master plan that covers all aspects in the value chain. This year has been a bit difficult because we started it with stock levels that were much too high. We also had a change in the emissions regulations that slowed us down. All in all, I think next year we will be able to achieve incremental sales.