Audi CEO Markus Duesmann flew to China final week to sort out an issue that’s indicative of the challenges dealing with Germany: tips on how to compete with its greatest buying and selling companion on new expertise.

The pinnacle of the German luxurious model went to go to Audi’s Chinese language three way partnership companions — China FAW Group Co. and SAIC Motor Corp. — to debate methods to promote extra electrical automobiles on this planet’s largest automobile market. The trouble is crucial not only for the Volkswagen Group unit but in addition as a take a look at of Germany’s capability to navigate threats to its competitiveness.

Germany’s vaunted automakers dominated the combustion-engine period, however the transition to electrical automobiles places their standing on the pinnacle of the auto trade in danger.

Audi, Mercedes-Benz and BMW are ramping up their vary of battery-powered fashions in a crucial bid to compete with Tesla and upstarts from China, together with BYD and Nio.

“The transition to electrical automobiles in China is of course a problem for us,” Duesmann stated in an interview at Audi’s headquarters in Ingolstadt. “We’ve not participated within the progress within the electrical car market as a lot as we wouldd have preferred.”

The shift to cleaner applied sciences presents a couple of dilemma for Germany. The warfare in Ukraine uncovered the nation’s reliance on low cost Russian gasoline for its power wants, and the shift to renewable energy has been gradual. There’s additionally uncooked supplies wanted for batteries, which primarily come from China.

Which means Germany’s automakers have to overhaul their product vary and their manufacturing system on the similar time.

“Vitality prices might be decisive for us, for Germany and for Europe,” Duesmann stated. “Vitality prices play an unlimited function within the manufacturing of a automobile. The uncooked materials prices play an enormous function.”

For years, Germany gratefully bought vehicles, chemical compounds and equipment to the Asian superpower, however extra lately the tables have turned and the commerce deficit is rising.

“China was transferring very quick earlier than, after which we as a society weren’t watching intently for 3 years and so they have saved transferring,” Duesmann stated. “It is like while you’re watching a marathon race and also you flip away for 30 seconds after which the competitors is someplace else fully while you look again. That is how it’s with China.”

In an effort to catch up, Audi is constructing an electrical car plant in Chengchun and has already rolled out its This fall E-tron and Q5 E-tron Roadjet in China and can add the RS E-tron GT later this yr.

However the bulk of its gross sales are typical vehicles.

Audi’s deliveries in China slumped 8.4 p.c to 643,000 automobiles in 2022, however nonetheless comprised 40 p.c of its international gross sales.

Volkswagen’s efforts to transition to the brand new automotive period has been fraught with setbacks, and delivering contemporary momentum is among the many most urgent duties for the auto group’s new CEO Oliver Blume.

A chaotic software program push — now bundled beneath the Cariad unit — has been one of many greatest complications and displays the difficulties dealing with an old-school engineering firm to combine new abilities.

For a time, Audi was overseeing an initiative to develop a typical working system throughout Volkswagen’s 12 manufacturers, and clients have grappled with unnerving glitches and journeys to the storage as an alternative of receiving over-the-air updates like Tesla.

New software-led widespread car underpinnings have been postponed by a number of years with important delays for key new fashions just like the Audi Q6 E-tron and electrical Porsche Macan.

Volkswagen final week revealed a bounce in deliberate spending, partly pushed by a push to enhance its lineup in China.

“China is the brand new benchmark for us relating to improvement time,” Duesmann stated.

Together with the remainder of Europe, Germany is caught between China’s rising ambitions and U.S. efforts to lure extra funding.

The European Union unveiled a response this week with the Internet Zero Business Act — a raft of latest measures geared toward nurturing inexperienced tech and securing uncooked supplies.

The EU wants to seek out the appropriate solutions to sustaining the bloc’s industrial competitiveness and keep away from being left behind in these shifts, the Audi chief stated.

“It is a European query and it is pressing,” stated Duesmann. “An infinite quantity is occurring in China and the U.S., and we, in fact, cannot look away. In any other case, the marathon runners may have turned the nook, and we can’t see them anymore.”