Can Volkswagen Avoid Financial Disaster by Restructuring Through EVs

Volkswagen AG is charting a new course for its future, one that promises job security, while smoothing the choppy financial waters that have threatened to sink the once great German. Volkswagen CEO Thomas Schäfer said “the roof is on fire” during a meeting with over 2,000 senior managers in July 2023. The meeting was held to discuss the company’s challenges as it transitions to electric vehicles. The ‘Zukunft Volkswagen’ (Future Volkswagen) agreement is the result.

The agreement was reached after lengthy negotiations between the company and employee representatives, outlines a strategic vision to transform the brand into the world’s leading volume manufacturer by 2030. This ambitious plan brings with it tough decisions, including substantial cost-cutting, workforce reductions, and a reshaping of production facilities across Germany.

At the core of the agreement is a €1.5 billion annual reduction in labour costs, achieved through a socially responsible reduction of over 35,000 jobs across Volkswagen’s German sites by 2030. While this represents a significant hit to the workforce, the company asserts it is necessary to ensure job security for remaining employees at the agreed-upon levels. CEO Oliver Blume described the deal as a “decisive course” that positions Volkswagen to successfully shape its future amidst fierce competition and a shrinking European automotive market.

Volkswagen, like many other car makers, pinned much of their hope on the emerging Chinese market. All legacy brands who relied on Chinese sales have been caught out but the rapid rise of the Chinese domestic auto manufacturing boom. That boom is now spreading beyond the boarders causing ripples affecting the familiar mastheads. Nissan, Honda and Mitsubishi recently formed a coalition as they too feel the squeeze of Chinese newcomers, and there is little doubt other brands are floundering in similar circumstances.

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One of the most notable changes is the realignment of production capacities. Wolfsburg, Volkswagen’s headquarters, will see the relocation of Golf and Golf Estate production to Puebla, Mexico, in 2027, reducing assembly lines from four to two. In their place, Wolfsburg will focus on electric vehicles (EVs) like the ID.3 and CUPRA Born, with an electric Golf and another EV model joining the lineup by the end of the decade. Other German plants are also undergoing transformations. Dresden’s Transparent Factory will halt vehicle production by 2025, while Zwickau will shift to a single production line focused on the Audi Q4 e-tron. Emden, however, remains stable, continuing to produce the ID.4 and ID.7 models.

Volkswagen’s commercial vehicles and component plants are also part of the restructuring. Hanover will remain the hub for the ID. Buzz and Multivan but will implement cost reductions to finance future products. Similarly, component plants across Germany will aim for a cumulative efficiency increase of €3 billion by 2030, focusing on strategic core components and flexible production capacities.

While the ‘Zukunft Volkswagen’ plan ensures job security and sustained production in Germany, it’s not without trade-offs. The reduction in German production capacity by 734,000 units reflects both declining demand in Europe and the intense competition in the automotive industry. Yet, Volkswagen sees this as an opportunity to pivot towards electric mobility and achieve technological leadership.

“This agreement marks a fundamental realignment of Volkswagen AG,” said Gunnar Kilian, the company’s Chief HR Officer. “It ensures our competitiveness while maintaining production in Germany.”

The plan also prioritises innovation. Wolfsburg’s Technical Development department will lead the core brand group’s development network, but this comes at a cost—around 4,000 jobs will be cut as part of the realignment.

The stakes couldn’t be higher for Volkswagen. This bold restructuring could either solidify its electric dreams or reveal the cracks in a legacy automaker struggling to keep pace in a rapidly evolving market. Will ‘Zukunft Volkswagen’ deliver on its promise to combine sustainability and competitiveness? The road ahead will decide.

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