(Bloomberg) -- Volkswagen AG warned of a difficult year ahead as the German carmaker expects to fall further behind in its key market China, where a bruising price war is hurting returns.

The manufacturer said Wednesday it’s willing to give up market share in the world’s biggest auto market this year and next to improve the business in the long term. It also guided for declining operating profit in China. The shares fell as much as 4.2%.

Volkswagen’s outlook for the China business is “disappointing,” UBS analysts led by Patrick Hummel said in a note, citing problems including the country’s “highly competitive” market.

The company is seeking to rebuild momentum in the shift to electric vehicles and is pushing forward with an ambitious savings plan at its namesake brand. That effort is even more urgent with weakening demand for EVs and growing competition from cheaper Chinese models, other European carmakers and Tesla Inc.

Volkswagen declined 3.8% as of 2:11 p.m. in Frankfurt. The shares have lost about 11% over the past year, while rivals Stellantis, Renault, BMW and Mercedes-Benz have all seen gains over the same period.

This year will be “challenging” due to economic uncertainty, high interest rates and intense competition on EVs, Chief Financial Officer Arno Antlitz told Bloomberg Television. “But there are also positives — the market will grow slightly and we’ll bring some great new models.”

The manufacturer expects orders in western Europe to pick up speed in the coming months on updates of popular models such as the Golf. Volkswagen plans to introduce more than 30 new products this year including the all-electric Porsche Macan and the ID.7 sedan.

The carmaker wants to make a decision on a potential partnership to develop EVs priced below €20,000 ($21,878) this year, Chief Executive Officer Oliver Blume told reporters in Berlin. It’s “very difficult” to make a profit off budget EVs, Antlitz said. Renault SA has held talks with peers on such a project.

Read More: The Big Miss on EVs Is Remaking Europe’s Auto Industry

Volkswagen is overhauling its EV offering in China that’s failed to impress local customers and partnering with Chinese EV maker Xpeng Inc. It’s pursuing cheaper batteries and improved automated-driving features and aims to regain market share in the country from 2026, Antlitz said.

Operating profit at Volkswagen’s financial services arm declined by around a third last year due to falling prices for used cars. Its battery business recorded an operating loss of €400 million ($437 million) amid high investments. The ailing Cariad software unit reported an operating loss of €2.4 billion.

Volkswagen expects sales to grow by as much as 5% this year, slowing from 15% last year, the company said earlier this month when pre-releasing fourth-quarter results. North America has the potential to become its biggest growth market in 2024, Antlitz said Wednesday.

--With assistance from Oliver Crook.

(Updates with China outlook in second paragraph.)

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