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No real recovery in sight for VW in China, CEO says

Key Points
  • Herbert Diess of VW is trying to offset White House tariffs that affect manufacturing and exports around the world.
  • In July, Volkswagen Group announced that its first half operating profit rose 10% to 9 billion euros.
VIDEO3:1103:11
VW CEO: China and US trade war will last several months more

Volkswagen's Chief Executive Herbert Diess told CNBC that his company is not immune to the global economic slowdown that appears to be taking hold.

"World markets, some are really in decline. (In) China there is no real recovery in sight so far," Diess told CNBC's Annette Weisbach at the Frankfurt Motor Show on Monday.

Diess said the firm was largely managing to defend its market share through clever marketing and was also being helped by slowly increasing sales in the United States.

Under President Donald Trump, the U.S. has threatened a series of global tariffs which would have a negative effect on European carmakers. The most obvious is the threat to raise import tariffs on foreign cars, although Trump has delayed his decision on the issue.

In June, Diess reportedly met with U.S. Trade Representative Robert Lighthizer to discuss the specific impact of U.S. tariffs on Mexican made goods, which directly affect VW manufacture in the Americas. VW Group also has a substantive presence in China, Trump's main target for tariffs.

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Diess said Monday that tariffs don't "make our life easier" and the German firm depended on low trade barriers to maintain margins. He added that VW would like to see the trade threats "go away" in the coming months but didn't expect that to be the case.

Speaking at the same event, Oliver Blume, the CEO of VW-owned Porsche, said it was carefully monitoring the geopolitical situation.

"We are observing very deeply what is happening in the U.S., with all the conflicts on the global market. Also in England what they are doing there. And we are prepared with different scenarios," he told CNBC.

"But on the other hand we have a very huge fan base in the U.S. with a lot of Porsche clubs. So we are very confident to continue with a very good business in the U.S. But it's a serious topic."

No recession for Germany

Economic growth in the domestic market of Germany has been poor in 2019, leading to suggestions that Europe's most influential economy may be on the brink of recession.

Diess said he didn't expect a recession for Germany but economic signals suggested more of a "consolidation" process for the country.

"We have full employment, we have new markets going up, we have a lot of technology and innovation coming to the market, new business concepts, so I don't see a recession in the future."

Tesla could be VW's neighbor

In August, Volkswagen was forced to deny a report that suggested it was looking at taking a stake in U.S. electric carmaker Tesla.

Stories of a tie-up may be exaggerated but Elon Musk's car company has been scouting locations in Europe for a new factory and Tesla has reportedly looked at Lower Saxony, Germany, near to VW's headquarters.

Diess said Monday that he would not comment on bettering Tesla for battery performance or cost, but revealed that VW believed it had now become "competitive."

In July, VW formed an alliance with U.S. giant Ford focusing on battery-car technology. Ford will use VW's modular car platform for all of its pure electric vehicles that it plans to build in Europe.

The same platform is already used in models of Audi, SEAT, Skoda and Volkswagen.