The high walls of the Volkswagen assembly plant in the heart of northwest China’s Xinjiang region are hundreds of meters long. Once a symbol of Germany’s industrial prowess, they are now a symbol of Volkswagen’s commercial and political woes in China.

For 40 years, the Volkswagen Group has been the largest holder of China’s automobile market share. Chinese consumers cherish Volkswagen’s various models, from the frugal Santana to the high-end Audi and Porsche. But Volkswagen’s status as China’s carmaker of choice has been overtaken by Chinese electric car giant BYD.

BYD has rapidly expanded sales of all-electric vehicles over the past three years, forcing Volkswagen to make a big bet on the EV market last year. BYD caught Volkswagen off guard again earlier this year by ramping up sales of plug-in hybrids, which have a long range powered by batteries alone and have small gasoline engines as backup. Volkswagen has almost no such fast-growing models, and this huge gap will not be fully filled until the end of next year.

“Chinese consumers view Volkswagen as the king of the past, when global brands dominated the market,” said Michael Dunne, a consultant on the Chinese auto industry. “Today, many Chinese consumers have no interest in Volkswagen models. They prefer newer and more attractive models from local brands.”

China’s state-owned banks and local governments have been injecting capital into local automakers, allowing some to sell vehicles at prices well below their manufacturing costs. VW executives said they refused to join the price war, and as a result they gave up market share.

“Electric vehicles are forced to enter the market at discounts of up to 50 percent,” a Volkswagen spokesman said. “So we made the decision last year that we didn’t want to continue to grow at all costs in this unhealthy environment.”

Volkswagen’s difficulties in China are affecting the entire company. Volkswagen’s car sales in China fell 10.2% in the first nine months of this year, offsetting all of its sales growth in the rest of the world. Affected by this, the global sales of the entire group fell slightly year-on-year.announced on tuesdayprofits fell sharply in the third quarter.

Volkswagen may have to do this in Germanyclose factorycould close up to three locations, each employing thousands of workers, for the first time in its 87-year history, in part because of competition from China.

Political missteps compounded mass hardship.

In May this year, Volkswagen began exporting electric vehicles it produces in China to Europe. The problem is that the EU has started imposing tariffs on imports of such cars from China.

The European Commission, the EU’s executive arm, began an investigation more than a year ago to determine whether the Chinese government improperly subsidizes electric vehicle production. The Chinese government responded by pressuring manufacturers not to cooperate with the EU investigation. Volkswagen, unlike some other foreign manufacturers, has refused to share information with the European Commission.

Volkswagen began exporting the Cupra Tavascan pure electric model to Europe in May this year. The car is manufactured at a new design and production base of Volkswagen in central China. But not long after, the European Commission decided to impose tariffs on Chinese electric vehicles. Car companies like Volkswagen that have not cooperated with the investigation have been told that their cars exported to Europe will face the highest tariff: 37% starting this week.

Volkswagen managed to reduce tariffs to 21%, which took effect on Wednesday. But Tesla earlier cooperated with the EU investigation, convincing the European Commission to reduce its tariffs to just 7.8%. Tesla is one of Volkswagen’s biggest competitors. BYD will face a 17% tariff. Volkswagen could face a lasting disadvantage in its home market for any electric cars it imports from China, the world’s low-cost producer.

Volkswagen’s latest problem appeared on October 23 this year. China’s Ministry of Foreign Affairs said that day that Volkswagen Group’s chief marketing officer for the Chinese market tested positive for cocaine and had been deported after being detained for 10 days. He had just returned from a vacation in Thailand, and when he returned to Beijing, drugs were detected in his blood. Volkswagen declined to comment for this story.

But Volkswagen’s longest-running problem in China is in Urumqi, the capital of Xinjiang.

In 2013, VW established a joint venture with state-owned Shanghai Automotive Industry Corporation to build an assembly plant in Urumqi to produce cheap gasoline-powered vehicles for sale in China’s western region. Volkswagen has deliberately employed large numbers of Uighurs, a predominantly Muslim ethnic group in Xinjiang. Uyghurs have long been discriminated against by Chinese employers, and Uyghur activists launched multiple attacks from 2008 to 2014fatal attackSince then, Chinese employers’ distrust of Uyghurs has deepened.

Since 2014, China has targeted Uyghurs and other predominantly Muslim ethnic minorities in Xinjiang.crack down hard. As many as one million Uyghurs, Kazakhs and other ethnic minorities were sent toRe-education camps, internment camps and prisons. Forced labor programs linked to the crackdown that send Uyghur farmers to work in factories and other cities have drawn harsh criticism from human rights groups and led the United States and some European countries to restrict imports from Xinjiang starting in 2021.

Last spring, Volkswagen had to suspend deliveries of 30,000 Audis and other premium cars to U.S. customers after the company realized one of its suppliers had been buying engine parts from Xinjiang in violation of U.S. regulations. The luxury cars sit in U.S. ports awaiting replacement of vetted parts.

Volkswagen, meanwhile, faces accusations from overseas activists that it used Uyghur forced labor to build a track for testing its vehicles near Urumqi. Volkswagen denies the accusation. Late last year, Volkswagen hired an audit firm to investigate its compliance with international labor standards in Xinjiang, but some overseas criticized the audit, saying it did not do enough to keep the names of workers who provided information confidential.

Another problem facing VW is that the joint venture assembly plant in Urumqi has not produced cars since 2019 due to weak sales. Only 190 workers remain at the factory, who are just making final preparations before delivering the cars to Volkswagen dealerships in western China.

China’s demand for gasoline-powered cars has plummeted. Exporting cars abroad from Urumqi is impractical: nearby Central Asian countries rarely buy cars, and the assembly plant is 2,900 kilometers from the coast, making shipping by sea out of reach.

In interviews this month, Volkswagen owners in Urumqi said they were satisfied with their gasoline-powered vehicles and did not want electric vehicles. Their biggest concern about electric vehicles is that they are not suitable for the region’s severe cold weather, which can damage batteries and shorten cruising range.

But Xinjiang’s own car market is not big. Electric vehicles and plug-in hybrid vehicles already account for 54% of China’s auto market and are still growing, and sales of gasoline-powered vehicles are expected to decline further nationwide.

Volkswagen needs to close its diesel vehicle assembly plant in China. It has halted production at a factory in Nanjing and has not assigned any future models to the plant, which could be a sign that VW may close the plant.

Since February this year, Volkswagen has said it was in “further negotiations” with relevant parties to determine the company’s future activities in Xinjiang. But exiting Xinjiang has proven difficult for any foreign company.

German chemicals giant BASF said it began trying to sell its stake in two joint ventures in Xinjiang a year ago. But it has yet to receive government permission. In September this year, China’s Ministry of Commerce began investigating whether PVH, the parent company of Calvin Klein and Tommy Hilfiger clothing brands, did not purchase products from Xinjiang, which was a “discriminatory practice.”

Complicating Volkswagen’s dilemma is that Volkswagen’s partner in Xinjiang, SAIC Motor, is a wholly-owned subsidiary of the Shanghai municipal government and strictly adheres to the wishes of the Chinese government. But SAIC’s continued involvement has drawn criticism from human rights activists in Europe. China’s Foreign Ministry declined to comment, and SAIC Motor, which owns and produces the SAIC MG brand, did not respond to requests for comment.

In February this year, China’s Ministry of Foreign Affairs called on Volkswagen and BASF not to leave Xinjiang, saying they should “cherish the opportunity to invest and develop in Xinjiang.”