Volkswagen is preparing the biggest cut in its history. Is the European car back in the game, or on its knees?
The head of Volkswagen $VOW3.DE Oliver Blume reportedly plans to cut up to 100 000 jobs worldwide — roughly 15% of all employees and twice what was being discussed just a few months ago. On top of that, the closure of four German plants (Hannover, Zwickau, Emden and Audi in Neckarsulm), a 15% reduction in investments and a complete restructuring. There is even talk of spinning the VW brand out into a separate company.
And when you look at the numbers, it’s no wonder.
No optimistic story yet. VW saw operating profit down 14% in the first quarter, BMW $BMW.DE saw pre-tax profit fall by almost a quarter, and shares of Stellantisu $STLA plunged after warning of a billion-euro shortfall. Sales in Europe are stagnating or falling. This is not an industry rising from the bottom — this is an industry under pressure.
Pressure is coming from China. BYD increased sales in Europe by 145 %, Chery by 316 %, Leapmotor by over 550 %. Cheap, fast, electric. While European giants lay off workers and close plants, the Chinese are building business here. In the U.S., the government is fighting Chinese EVs hard — it recently banned next year the sales of any model from Polestar, which is linked to a Chinese owner. Do you think this is a step in the right direction?
Cuts may improve margins and calm the accountants. But on their own they won’t solve why customers increasingly reach for Chinese competition.
Do you believe European automakers can still stand up to China? Or is that lead already lost?
I'm currently reading the book Kaput (The End of the German Miracle) and I have to say that Germany's problems run much deeper and reach into the "older" past. It took German carmakers a long time to start producing and selling electric vehicles, and by the time they began to focus on them they were being trounced by the Chinese, who have been making EVs for years and whose government investment in this sector can't be matched by European states. I'm very interested to see how this whole situation will play out, since the German — and I'd say the European — industry depends on the automotive sector.
The article is misleading to some extent. Those Chinese sales increases in Europe look impressive, but they are rises from a low comparative base. The fact is that VW is actually number one in EV sales in Europe and, I believe, in Germany overall even when you consider all cars. Its problems are instead caused by a sharp drop in sales in China (where competition is so fierce that the company with the highest sales is actually the one losing the most) and then in the US because of tariffs — Europe is not the problem. In China a particularly bad practice has become widespread: automakers are paying their suppliers increasingly late, effectively forcing them to provide free financing. For example, the much‑praised BYD settles its liabilities with maturities of more than a year, which is unsustainable in the long term.
The thing is, almost all European carmakers have hedged themselves by owning significant stakes in the best Chinese carmakers, so in terms of money, if the Chinese were to earn from them (which they haven’t so far), they wouldn’t lose out.
And as for the layoffs, of course they should have done that earlier — but those unions...
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They definitely should have done it back when it was being discussed. Does anyone remember Herbert Diess? Blume could easily end up the same. Otherwise, VW may have an ace up its sleeve for China 🤞 $QS, which I hope it will pull out soon 🤞