Volkswagen Faces Unprecedented Challenges as Factory Closures Loom in Germany
Volkswagen is contemplating the closure of two factories in Germany, marking a historic first for the automaker in its home country. This decision is a response to the mounting complications posed by the transition from fossil fuels to electric vehicles (EVs), which currently yield lower profit margins. The Wolfsburg-based manufacturer informed its works council on Monday about the potential closing of at least one major vehicle manufacturing plant and one component factory, indicating a strategy aimed at achieving substantial cost savings worth billions of euros.
This consideration illustrates the broader challenges traditional European car manufacturers face as they attempt to pivot away from profitable yet environmentally harmful petrol and diesel vehicles, and embrace cleaner, electric alternatives. Alongside these considerations, European and U.S. carmakers are increasingly feeling the pressure from Chinese electric vehicle manufacturers, who benefit from lower production costs and higher profit margins.
Last month, Ford cited competition from Chinese automakers as a reason to cancel a new electric SUV project and postpone plans for an electric pickup truck, while General Motors, Mercedes-Benz, and Volkswagen's luxury brand Bentley have also delayed their electrification efforts. Tesla, another key player in the electric vehicle market, is grappling with declining sales.
The European Union has recently introduced additional tariffs on Chinese imports, which range from 17.4% to 37.6%, on top of an existing 10% import levy. These measures are a reaction to claims that Chinese manufacturers have gained unfair advantages through substantial state subsidies. Despite these tariffs, many Chinese manufacturers may still be able to maintain profitable sales in Europe due to their cost advantages.
Oliver Blume, Volkswagen group’s CEO, acknowledged the challenges faced by the European automotive industry, stating, "The economic environment has become even tougher, and new competitors are entering the European market. Germany, in particular, is losing competitiveness as a manufacturing location. In this environment, we must act decisively."
Volkswagen, which encompasses several brands including Audi, Porsche, Seat, and Škoda, mentioned in July that it was contemplating the closure of an Audi factory in Belgium—potentially its first factory closure in Europe after 40 years.
However, closing a factory in Germany, synonymous with a strong automotive heritage, would signify a dramatic strategic shift for Volkswagen and would likely provoke significant political controversy. Germany's economy has been teetering on the edge of a technical recession for nearly two years, posing additional strain on the automotive sector as it seeks funding for new electric models.
The prospect of factory closures at Volkswagen adds to the pressure on Chancellor Olaf Scholz, particularly in light of the rising influence of far-right parties following an electoral defeat in the state of Thuringia—the first state election win for a far-right party since the Nazi era.
Volkswagen's works council has warned that all German factories under the group could be at risk. The company is also reconsidering prior investment commitments, which included a compact electric SUV forecast to secure production at VW's main factory in Wolfsburg from 2026, as well as the Trinity sedan models planned for another factory in Zwickau.
Volkswagen brand CEO Thomas Schäfer articulated that closures in vehicle production and component sites can no longer be dismissed. Daniela Cavallo, chair of Volkswagen's works council, vowed to fiercely oppose any proposed closures, accusing the company's board of failing in their responsibilities. "With us, there will be no site closures," she stated, urging for a strategic enhancement to address the company's vulnerabilities such as product complexity and operational synergies.
Thorsten Gröger, a lead negotiator with the union IG Metall, described the proposed closures as irresponsible, endangering the core of Volkswagen and jeopardizing jobs and operational sites. He emphasized that this approach is not only shortsighted but also perilous, and vowed that the union would vehemently fight to protect jobs.
Related Sources: