Volkswagen's Cost-Cutting Measures Amid Chinese EV Competition

IG Metall

Volkswagen (VW), Germany’s largest carmaker, is negotiating cost-cutting measures with IG Metall, the metalworkers' union, to combat the increasing pressure from Chinese electric vehicle (EV) manufacturers. VW has agreed to reduce workers’ wages by 10%, a step aimed at addressing declining market share in key regions, particularly China.

Rising Challenges in the EV Market

The cost-cutting comes as VW faces declining global sales and capacity utilization. In the third quarter of this year, VW reported global deliveries of 2.17 million vehicles, a 7.1% year-on-year decline. The company’s factory utilization rate also dropped to 69%, compared to 79% in 2019. German car factories overall are performing worse, with utilization rates at just 56%, down from 70% in 2019, partly due to sluggish economic growth.

In Germany, EV sales have plummeted following the removal of a €4,500 government subsidy for EV purchases in December 2022. Despite the challenges, VW’s Emden plant is set to transition exclusively to battery-electric vehicles by next year, with production targets of 190,000 units for the ID.4 and ID.7 models.

Chinese Competition and Global Impact

The biggest threat to VW's market position is the rise of Chinese carmakers. Chinese manufacturers have aggressively gained market share in the EV sector, climbing from 36% in 2020 to 63% in the first half of 2023, according to Automobility Media. This competition has led to a steady decline in VW’s sales in China, dropping from 3 million units in 2018 to 2.1 million units in the first nine months of 2023.

VW’s post-pandemic struggles are reflected in its September announcement to close two underperforming plants, which contributed to a forecasted sales shortfall of 500,000 units annually. The ongoing negotiations with IG Metall focus not just on pay cuts but also on issues such as temporary work and worker training, with a meeting scheduled for November 21.

Strategic Adjustments for the Future

While cost-cutting measures are a short-term strategy, VW is also making long-term adjustments to stay competitive. The company plans to ramp up its EV production, betting on models like the ID.4 and ID.7 to strengthen its presence in the global EV market. However, with Chinese carmakers continuing to dominate both domestically and internationally, VW’s ability to innovate and streamline operations will be crucial to maintaining its position as a global automotive leader.