Volkswagen may shut German car plants due to impact of Chinese EVs

German automotive giant Volkswagen is reportedly considering the closure of factories in Germany for the first time in the company’s 87-year history as it seeks to cut costs as it fights increasing competition from China’s electric vehicle (EV) makers.

In management meetings on Monday, the Volkswagen Group executive board led by CEO Thomas Schaefer reportedly admitted that its €10 billion cost cutting Performance Programme launched in 2023 had failed, and that in order to deepen cost cutting measures the company may need to close German factories.

German outlet der Spiegel claims on Monday that “there is currently a gap of four to five billion euros in the financial plan of the Volkswagen and VW Commercial Vehicles brands.”

Volkswagen is not the only car manufacture to be struggling, with manufacturers around the globe suffering from increased material prices, a weaker than expected US market, lower EV demand, and long-tail effects from the COVID-19 pandemic and Russian invasion of Ukraine.

On top of this, Volkswagen is amongst a handful of carmakers fighting against an influx of cheaper Chinese-made EVs that are eating into their home markets.

In statements to the press on Monday, Volkswagen concluded that it was considering closing “at least one larger vehicle manufacturing plant and one component factory in Germany” in an effort to further cut costs.

“The European automotive industry is in a very demanding and serious situation,” said Oliver Blume, the Volkswagen group chief executive, in a statement to journalists.

“The economic environment became even tougher, and new competitors are entering the European market.

“In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness. In this environment, we as a company must now act decisively.”

Volkswagen also indicated that its various brands – which includes its eponymous brand alongside Audi, Porsche, Seat, Škoda, and others – would likely be required to undergo a “comprehensive restructuring.”

“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” added VW brand CEO Thomas Schafer.

“Therefore, we intend to start discussions with employee representatives as soon as possible to explore options for sustainably restructuring the brand.”

News of Volkswagen’s plans were met with harsh criticism from those representing Volkswagen’s workers, with the company’s works council vowing “fierce resistance” and that “the cost-cutting programme at VW is escalating and leading to a major conflict between management and the General Works Council”.

Volkswagen’s works council head Daniela Cavallo, a member of Germany’s powerful IG Metall union, is expecting negotiations with the company’s management to become “very uncomfortable”.

“The Management Board has failed,” said Cavallo in a message to employees. “The result is an attack on our jobs, sites and collective agreements. This puts VW itself and therefore the heart of the entire Group at risk.

“We will set up a fierce resistance against this. With us, there will be no site closures.

“Instead of making one-sided savings at the expense of the workforce, we now need a strategic boost for the actual weaknesses: Product, complexity, processes, synergies. That is the plan we need. And this is not an issue for the VW brand alone. We are calling for the Group Board of Management to finally fulfil its responsibilities.”