Volkswagen is in the headlines after slashing the price of its newly launched Tharu XR SUV to 79,900 yuan ($10,000). The German automaker’s move is a strategic one as the competition has become more intense in the Chinese market. Volkswagen, becoming part of the automotive landscape, is adjusting itself to the challenges presented by both domestic and international rivals. Volkswagen has plans to fortify its presence in China’s SUV market and the addition of the Tharu XR (positioned between T-Cross and the base model Tharu) is its latest line of effort. The brand is backed by the SAIC Volkswagen joint venture that is instrumental in the brand’s spread in China. With sharp headlights, full length LED light strip and sporty tail lamps, the Tharu XR is designed to emulate other popular Volkswagen models. It is 4,355 mm long, spacious inside and sleek at the same time.
Under the hood, the Tharu XR is expected to offer two engine options: Petrol engine, naturally aspirated 1.5L and turbocharged 158 hp. This helps them provide a wide range of powertrains to cater to a consumer’s many preferences and to make the vehicle as attractive in the marketplace.
But that doesn’t mean deciding not to lower the Tharu XR’s price won’t happen without consequences. However, Volkswagen’s finance Chief Arno Antlitz has warned before that the German carmaker has only a few years left before it is engulfed in fierce competition — from Asian manufacturers such as Chinese BYD and Chery. These rivals are growing production capacity and market share in Europe quickly and are themselves responsible for the most recent price cuts as a direct result of the challenges of matching them.
The price reduction for the Tharu XR is one of a number of price reductions that Volkswagen has had to offer across its brand lineup to stay competitive. The discounts were steeper than expected, leading to hundreds of millions of euros in losses, according to this strategy. It is clear that Volkswagen’s passenger car brand is also pressured to remain profitable as its profit margin actually tumbled to just 0.9 percent in the second quarter, compared to its peers Renault and Stellantis.
Volkswagen’s problems are made worse as the automotive market continues to shrink, and Europe’s car market is down by 13 percent compared to pre-pandemic levels, as rising energy and labor costs in Germany are eating into already meager profits. The company could have to adjust its full year group margin goal downwards when it announces its third quarter results, say analysts.
The Tharu XR’s pricing strategy is in line with broader automotive industry dynamics where mass market vehicles price themselves on cost largely to differentiate. Volkswagen’s ability to maintain its share will hinge on its ability to find that balance between quality and affordability, as demand for affordable SUVs grows.
VW’s brutal pricing act against the Tharu XR SUV aims to show the extremely competitive nature of China’s automotive market. However, the company still has to see how it can cope with these challenges and how will it be able to adjust and stay in top position in the industry. Perhaps the Tharu XR is the vehicle that will right Volkswagen’s ship in a market moving so fast, but only time will tell if this strategy will pay off long term.
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