Summary of Key Points
Volkswagen is undergoing the most radical restructuring in its 89-year history: it plans to cut 100,000 jobs globally (doubling the previous figure), close four factories in Germany, reduce annual production capacity to 9 million vehicles, and sell off its luxury car brand Bugatti. This comes amid a failure in its electrification efforts (with electric vehicle sales far behind Tesla and BYD, and a significant decline in its share of the Chinese new energy market), halved profits from fuel-powered cars, and wasted investment in software development. Additionally, the European automotive industry as a whole is facing the challenges of electrification. Meanwhile, Chinese automakers are accelerating their international expansion, and the center of power in the global automotive industry is beginning to shift towards China.
How Epic Is Volkswagen's Restructuring?
In simple terms, the plan involves three main measures: cutting staff, closing factories, and selling assets:
- Doubling Job Cuts: The initial plan was to lay off 50,000 employees; now, 100,000 layoffs are planned. Already, 28,000 people have voluntarily resigned, and the costs at German factories have been reduced by 20%.
- Factory Closures: Three Volkswagen factories in Hanover, Zwickau, and Emden will be closed, as well as the Audi plant in Neckarsulm.
- Asset Disposal: Bugatti was sold two months ago for 1 billion euros (about 7 billion yuan), marking the first complete departure from the brand since its acquisition in 1998.
- Production Capacity Reduction: Global annual production capacity will be cut by 3 million vehicles, down from 12 million to 9 million, which is equivalent to producing about three fewer Tesla cars (Tesla's target for 2025 is around 1 million; however, Volkswagen's electric vehicle sales for 2025 are only planned at 780,000 units, so Tesla's production would be more than three times that of Volkswagen. Regardless, the reduction in capacity is significant.)
German media describe this as one of the largest restructurings in the history of the automotive industry, indicating the dire situation Volkswagen finds itself in.
Why Has Volkswagen "Fallen from Its pedestal?"
In 2019, Volkswagen was still the global sales leader with 10.97 million vehicles sold and a record profit of 19.3 billion euros. But now:
- Poor Electrification Transition: The company invested 35 billion euros in the MEB electric vehicle platform and 20 billion euros in the software subsidiary CARIAD, which has become a money-draining endeavor (with losses of 3.2 billion euros forecast for 2025). The system's lagging performance is comparable to installing 400 tablets in 400,000 cars; even Chinese joint-venture factories do not use CARIAD's software (Anhui Volkswagen uses Xpeng's, while FAW-Volkswagen and SAIC-Volkswagen use DJI's autonomous driving systems), resulting in a huge waste of investment.
- Poor Electric Vehicle Sales: Only 780,000 electric vehicles are expected to be sold by 2025, less than one-third of Tesla's sales. BYD has far outperformed Volkswagen in this segment, and Volkswagen's share of the Chinese new energy market has plummeted from 15% in 2021 to 6.8%, effectively pushing it out of the competition.
- Crumbling Fuel-Powered Car Business: Profits rely on fuel-powered cars, but China's fuel-powered car sales are expected to decline by 28% by 2025. Volkswagen has been forced to cut prices (for example, the Lavida is being sold with a discount of 40,000 yuan), and per-vehicle profits have dropped from 18,000 yuan to 6,000 yuan, not enough to cover the costs of electrification.
- Stock Price Hits a 20-Year Low: The stock price plummeted by 3.4% upon the announcement of these measures, falling even lower than during the 2008 financial crisis, showing that investors are very skeptical about Volkswagen's future.
Layoffs and Factory Closures Are No Easy Task: Unions Are a Major Barrier
German unions are extremely powerful and have caused problems before. In 2023, when Volkswagen attempted to close the fuel production line at the Emden factory, the union organized a 12-day strike, resulting in direct losses of 1.5 billion euros. With plans for over 100,000 layoffs and four factory closures, will the unions agree to these measures?
Volkswagen CEO Oliver Zipse once considered a "roundabout solution" of allowing Chinese automakers to rent idle European factories (for example, Xpeng has shown interest), but this idea sparked outrage in Germany ("selling factories to the Chinese?"), so he quickly rejected it. However, with the current more aggressive restructuring, perhaps the unions will compromise—just as Lu Xun said, "To break a window, you first have to shout 'Hail the roof!' After that, breaking the window becomes much easier."
It's Not Just Volkswagen: The Entire European Automotive Industry Is Facing Difficulties
Volkswagen is not alone; the entire European automotive sector is undergoing layoffs and contractions:
- Automakers: BMW plans to cut 5% of its workforce (7,700 jobs), Ford in Europe plans to lay off 4,000 employees, and Stellantis in Italy plans to cut 2,000 jobs.
- Suppliers: Bosch will lay off 22,000 employees by 2030, ZF in Germany plans to cut 11,000–14,000 jobs, and Continental Group plans to cut 3,000 jobs, mostly in research and development.
- Industry Figures: The European parts industry will lay off 104,000 employees between 2024 and 2025, more than during the pandemic. The German automotive industry could lose a total of 225,000 jobs by 2035 (with 100,000 already gone).
Why? The era of electrification has changed everything: fuel-powered cars rely on engines and transmissions, where Volkswagen once had a technological advantage; electric vehicles depend on batteries, motors, and software, giving traditional automakers no competitive edge. They must purchase these components from others at higher costs. Moreover, electric vehicles require fewer parts, and Tesla's factories have an automation rate of 95%, with production capacity three times that of traditional factories, resulting in a 70% reduction in labor costs. Volkswagen's old factories and workers have become a burden.
Chinese Automakers Are on the Rise: The Center of Power Is Shifting to China
While European automakers are closing factories and laying off employees, Chinese automakers are making significant progress:
- Global Export Leader: In 2025, China will export 12 million vehicles, surpassing Japan for the first time, with 70% being new energy vehicles.
- Accelerating International Expansion: BYD is building factories in Europe, NIO is entering the German market, and Li Auto's range-extended electric vehicles are selling well in Southeast Asia.
- Capturing European Market Opportunities: With Volkswagen closing factories, Chinese automakers are establishing facilities in Mexico, Hungary, and Thailand to fill the void.
This means that the center of power in the global automotive industry is shifting from Europe and America to China. A hundred years ago, Volkswagen popularized cars with the Beetle; now, it must rely on layoffs to survive. Chinese automakers, however, are using new energy technologies to rewrite the rules of the game.
In conclusion, whether Volkswagen's restructuring will be successful is uncertain. But one thing is clear: the wave of electrification is unstoppable. Either companies must transform and survive or they will be eliminated by the times.