Reduction of Production Capacity
Volkswagen will further reduce its global production capacity by 1 million cars per year, as the company’s sales are not returning to pre-COVID-19 pandemic levels. These reductions will affect European plants and primarily impact the Volkswagen and Audi brands.
As of last year, the German conglomerate could produce approximately 12 million vehicles but sold only 8.68 million. CEO Oliver Blume stated that excess capacity is not sustainable for the company in the long term, adding that past planning volumes are unrealistic in the modern era.
“In Europe, we will also reduce this figure by approximately one million by 2028, mainly at Volkswagen and Audi,” said Blume.
He also noted that the company is facing negative consequences amounting to tens of billions and has taken massive countermeasures. The focus is now on further lowering the break-even point to become even more resilient in a risky environment.
Comparison with Pre-Crisis Indicators
Before the pandemic, the VW Group sold over 10 million cars annually and was approaching the 11 million mark in 2017, 2018, and 2019. Blume emphasizes that 2019 was the last year when markets were predictable and that achieving 9 million units now is a solid result.
Impact of External Factors on the Market
Oliver Blume highlighted a number of challenges facing the automaker. He noted that tariffs imposed in the US affect the company’s profits and complicate access to an important future market. Furthermore, more and more competitors are entering the market.
“Selling nine million vehicles under these current conditions is a strong achievement,” said Blume.
He also pointed out how the war in the Middle East has impacted the automotive industry, adding that these developments do not pass without consequences.
Future of European Plants and Impact on Employment
It is currently unclear which specific VW plants in Europe are under threat. Its electric vehicle plants in Emden and Zwickau are now operating significantly below capacity. Blume suggested that one of the brand’s European sites could be sold to a Chinese competitor. Overall, approximately 50 thousand jobs in Germany are expected to be affected by VW’s cost and production reduction measures by 2030.
Optimism Regarding New Projects
Despite the gloomy forecasts associated with these decisions, Blume expressed optimism about production in North America and the new Scout brand.
“These [Scout] are great cars that fit perfectly into this market. Collaborating with others would be a way for us to minimize risk,” he said.
He added that investments could be shared with other companies, and partners, for example, could use the VW platform. However, a final decision has not yet been made. Enthusiasm and expectations for this brand are very high.
Volkswagen’s strategy indicates a profound transformation of the entire automotive industry under pressure from geopolitical tensions, trade barriers, and fierce competition, especially from Chinese manufacturers. The decision about a possible plant sale to competitors from China is an unprecedented step for the German auto giant and could set a precedent for other European manufacturers. The success or failure of new initiatives, such as the Scout brand in the American market, could largely determine the future financial stability of the Group in the next decade.