Volkswagen to close factories in Germany

Germany is synonymous with the cars we like. From its beginnings in Germany, its rocky time during WW2 and its flourishing soon after, Germany has been at the heart of the air-cooled classics that we know and love. Wolfsburg is part of the lore of these cars and can be seen everywhere at Volkswagen shows from stickers to club names. ‘German-Made’ is stamp of quality and a selling point amongst these cars. But is that about to change for the modern day Volkswagen?

In news released today, Volkswagen has reportedly gone to its workers union and announced that not only one but two factories in Germany are facing the closure. One that makes components and one that makes actual cars, a move that the unions have said will be met with ‘Fierce resistance’ as many union jobs will be lost. Something to note is that if VW have gone public with this, it’s pretty much a full gone conclusion.

But why? What has the German Giant so worried? Well, frankly, it’s EV’s.

Now, this isn’t us just being all EV negative, many classic car owners feel like cars probably peaked in the 80’s and that subsequently has led to some pretty strong and negative views on EVs. But that isn’t what is going on here, it legitimately is because of EVs. Volkswagen, like many of the global car firms have begun their transition into being an EV car manufacturer, with a goal of producing only Electric cars by 2033. That’s crazy to us. To think that in less than 10 years time gas pumpers will be a thing of the past and ONLY electric cars will be made is outrageous. But is that actually going to happen? But I digress. Regardless, of opinion on the subject, Volkswagen decided that it was going to happen. However, demand for said electric cars just doesn’t seem to be matching the demand for regular old fossil fuel cars. For cars delivered in 2023 (9.24 million cars) only 8.3% were EVs, granted that is an increase from 6.9% the previous year but to put that into a bit of context over 90% of people that want a new VW didn’t want an EV. Now, add that to the fact that by VW’s own numbers they make far less money on an EV and it’s not really a recipe for success.

Then come the Chinese.

The latest blow to the VW electric revolution comes courtesy of China, the world’s factory. The Chinese have started to make their own electric cars and to be fair, they’re pretty good. It could be said that the Chinese car industry has always been a bit of a laughing stock to the rest of the world. Generally speaking, in the past they basically made Chinese knock off versions of popular cars, made dirt cheap from crap components for the domestic market. Seriously google some of them; it’s a fun way to spend your lunch break. But times have changed and the cars that are coming out of Asia and specifically China are… well, they aren’t crap. They are made from better quality parts now and using the technology that most of the western car companies are buying from them anyway. With labour in China also being cheap in comparison these cars are of a similar quality but far, far cheaper. It’s making it almost impossible for the likes of VW to compete in the EV market, a market that is already one tenth of the customer base and is already less profitable. Oh and a market that they have put all of their eggs into. Starting to look a bit less of a good idea right? Governments have already stepped in to help stop this, there is already a 10% extra import tariff on Chinese vehicles with governments saying that the disparity in wages makes it an unfair market. With some countries considering bumping that up to around the 35% mark. Given that the VW group is 20% state owned, I think it’s quite likely that Germany will likely bump up their import tariffs to stem the flow of Chinese vehicles. But then again they do have an economy to think of, one that isn’t exactly on a hot streak.

So what does it all mean?

Volkswagen haven’t closed a factory in Germany in it’s 87 year history. To even think about it is a massive deal, but it has been outlined by top brass that they need to cut costs by over 10 billion, no small number. And with their stock value falling by a third over the last 5 years the time for drastic measures is certainly now. This is purely speculation on our part, but looking at the numbers we think it was too soon to go all in on the EV markets and committing so wholeheartedly to such a small market has bitten them in the arse. This isn’t just a VW problem either, this is an across the board problem. VW is the largest car manufacturer in Europe (by revenue), so it’s safe to assume that the other manufacturers are feeling the same problem. Many others have also committed to being EV only by a certain date (around the same sort of time). Again focusing a large amount of their energy and resources into a small part of their market. VW haven’t specified if the factory that is closing is an EV car factory but I have a sneaky suspicion that it is, or at least it should be.