olkswagen’s strategy to manufacture electric vehicles in Germany — under pressure from unions and local authorities seeking to protect jobs — has become a “poisoned chalice”, warns Justin Cox, Director of Global Auto Production at GlobalData.
“Premium costs and mobility for all are not compatible. This applies in particular to our German plants, which currently build the majority of our electric vehicles,” stated Volkswagen’s CFO Arno Antlitz in response to Reuters.
Germany hosts Volkswagen’s most expensive production sites: according to auto association VDA, German factory workers earned €59 per hour in 2022, compared to €21 in the Czech Republic, €16 in Hungary, and just $3 an hour in China.
Producing EVs in these high-cost environments amid weakening demand has severely impacted profitability. In August 2024, EV sales in Europe dropped by 44%, and 69% in Germany, dragging total car sales to their lowest point in three years.
A model that doesn’t add up
The Osnabrück plant is one of the most affected, operating at only 30% capacity. It currently produces the Porsche Boxster, Porsche Cayman, and the VW T-Roc Cabriolet — all of which are scheduled to be phased out by 2026. There’s no announcement yet on what will replace them.
“We’re asking Volkswagen to build models that people can afford — an affordable EV or combustion car that’s sustainable,” says Stephan Soldanski, a union representative in Osnabrück.
“We need ideas. We don’t want a slow death.”
Ironically, the very attempt to protect domestic jobs has undermined competitiveness. German factories fall below the 70% utilization threshold for profitability, and under current labor agreements, idled workers still receive full pay.
Political cost vs. industrial viability
Volkswagen now faces a difficult dilemma: renegotiate with unions or shut down plants. The company already scrapped a long-standing job security agreement in six German factories, opening the door to layoffs starting in mid-2025, unless a new deal is reached.
Talks with labor unions will begin on September 25, but labor representatives hold half the votes on VW’s supervisory board, which limits the company’s ability to impose closures unilaterally.
While unions push to preserve jobs, management warns that the scale of the challenge leaves little room for inaction.
Not just a Volkswagen problem
Volkswagen is not alone. According to GlobalData, Stellantis, Renault, and Ford will end 2024 with even lower factory utilization rates in Europe than VW. However, the difference lies in how they’re responding:
- Renault has cut thousands of jobs and closed production lines as part of a €3 billion cost-cutting program.
- Stellantis will have eliminated 20,000 jobs in Europe by the end of 2024 and shifted EV production to lower-cost markets like Slovakia and Poland.
- Ford is shutting down its Saarlouis plant in Germany and moving production to Spain.
Meanwhile, Volkswagen continues to focus EV production in Germany, caught between political risk and financial urgency.
Looking East
Volkswagen’s CFO says the company has just one to two years to turn things around in the face of increasing Chinese competition.
Data shows that Eastern Europe is becoming a magnet for production: plants in low-cost countries like Poland, Turkey, and Slovakia operate at 79% capacity, compared to just 54% in high-cost markets like Germany, France, and the UK.
Chinese automakers such as BYD and Chery are already setting up operations in Hungary and Poland. Experts say premium and luxury production will likely remain in Western Europe, while mass-market vehicles shift east.
Self-inflicted wounds?
Despite structural challenges, German unions argue that Volkswagen’s wounds are self-inflicted. They criticize the company’s failure to deliver affordable, attractive EVs — a gap that competitors like Stellantis are exploiting with models like the Fiat 500e, Citroën e-C3, and Opel Corsa.
Volkswagen’s cheapest EV, the ID.3, starts at over €36,000 — a price that makes volume sales difficult.
“They’ve balanced high- and low-cost countries for decades. Nothing has changed,” said Georg Leutert, director of automotive industries at union federation IndustriALL.
“You can’t blame the workforce.”
