Volkswagen Considers German Factory Closures to Shift to EVs

The CEO of Volkswagen said that he found the European vehicle industry extremely challenging and in a serious situation. Since new competitors are entering the market, the economic environment has become even more difficult.

Volkswagen is considering closing two of its German factories, which would be the car manufacturer’s first closure in its home nation since it aims to shift away from fossil fuels.

To save billions of euros in costs, the Wolfsburg-based manufacturer said on Monday to its work council that it was contemplating closing at least one large manufacturing plant and one component factory in Germany.

The Volkswagen plan highlights the challenges faced by traditional European car manufacturers as they switch from profitable but polluting petrol and diesel vehicles to cleaner but less polluting and less profitable electric cars.

Car manufacturers from Europe and the US are under increasing pressure from Chinese electric cars that manufacture their vehicles at much lower costs and higher profit margins.

Ford canceled plans to build an electric SUV and postponed the electric pickup truck last month due to Chinese competitors. Similarly, Mercedes-Benz, Volkswagen’s Bentley, and General Motors postponed electrifying their vehicles, while EV leader Tesla has encountered difficulty reviving declining sales.

On top of 10% import duties, the EU has further announced additional tariffs from 17.4% to 37.6% on imports from China. They argue that businesses have benefited from heavy and unfair government subsidies. It is still a cost advantage for Chinese car manufacturers, who would be able to sell vehicles that are profitable in Europe.

The CEO of Volkswagen said that he found the European vehicle industry extremely challenging and in a serious situation. Since new competitors are entering the market, the economic environment has become even more difficult.

Like Audi, Porsche, Seat, Škoda, and others, Volkswagen controls its brand. In July, they announced the closure of Belgium’s Audi factory. This is the first factory proposed to be closed in Europe, and the first that has been closed globally in over 40 years.

However, closing a plant in the German automotive sector would be a big strategic turn for the business and be politically controversial.

Germany’s economy has been wobbling on the edge of a technical recession for over two years, and the car industry is under pressure to look for funds to build new EVs.

Olaf Scholz is under increased pressure due to the failing economy and the rise of the right following the parties in the country’s ruling coalition, especially after losing an election in the German state of Thuringia to Alternative für Deutschland. It was the first state election to be won by a far-right party since the Nazi era.

Car manufacturing is also thinking of pulling back some of its earlier investments, such as Trinity saloon models, which were planned for a factory in Zwickau, and an electric SUV intended to guarantee production at the main factory in Wolfsburg from 2026 onwards.

The CEO of Volkswagen says that the closure of factories at locations where vehicles are manufactured can no longer be mapped out.

Daniela Cavallo, part of the Volkswagen Works Council, says she will put up intense resistance against planned closures and accuse the car manufacturing board of failure.

She also declared that instead of closing the sites, there needs to be a strategy boost to handle the real weaknesses like complexity, products, synergies, and processes, instead of spontaneous reduction at the expense of the workforce.

The lead negotiator covering VW says the idea is reckless and would shake the foundation of Volkswagen and pose a serious threat to jobs. He also added that this route would be risky, adding that the union would fight to protect its jobs.