Volkswagen Group may abandon its pledge to cut jobs by 2029 and consider closing German factories for the first time in its 87-year history to further cut costs in response to growing competition in the electric vehicle market.

According to CNN, Bloomberg and AFP, Volkswagen Group is taking further cost-cutting measures to cope with the increasingly fierce competition from electric car manufacturers. The German automaker said in a statement on Monday that rising costs are cutting into profit margins, making its financial situation "particularly challenging" and does not rule out the possibility of closing its own factories. Public information shows that Volkswagen Group was founded in 1938 and is headquartered in Wolfsburg, Germany. It is one of the largest automobile companies in Europe and one of the most powerful multinational companies in the world's automotive industry. The company is considering closing at least one large automobile manufacturing plant and a parts factory in Germany, while canceling the wage agreement. If the factory is finally confirmed to be closed, it will be the first time the company has closed a factory since it closed a factory in Pennsylvania, USA in 1988. Oliver Blume, the company's CEO, warned that the European automotive industry is in a "very serious situation." He said, "The economic environment has become more severe and new competitors are entering the European market. In this environment, we (as a company) must act decisively now." The new plan will violate the promise not to lay off German employees before 2029. The company has signed a long-term employment protection agreement with the union since 1994, agreeing to "no layoffs before 2029." Volkswagen's main target is its underperforming eponymous passenger car brand, whose profit margins have been squeezed amid the transition to electric vehicles and slowing consumer spending. Volkswagen's cost-cutting plan launched last year was hampered by the agreement reached with the union, which can only cut administrative expenses by offering employees early retirement and voluntary layoffs. In response, Daniela Cavallo, chairman of Volkswagen's union, sent a notice to employees on Monday saying that management is considering closing German factories as Volkswagen faces the risk of falling into losses. Volkswagen's new cuts are expected to face strong resistance from employee representatives. Under German regulations, unions represent the interests of employees at the supervisory board level. Employee representatives occupy nearly half of the seats on the company's supervisory board (the body responsible for appointing senior executives).

Volkswagen currently has about 650,000 employees worldwide, including nearly 300,000 in Germany. Analysts have long urged Volkswagen to implement layoffs in order to achieve cost savings at a time when heavy investments are needed to achieve the transition to electric vehicles. In 2023, Volkswagen announced a 10 billion euro cost-cutting plan, saying it would cut jobs in the coming years to improve profitability. And set a goal of an operating profit margin of 6.5% by the same year. But with rising logistics, energy and labor costs, it has become more difficult for Volkswagen to increase its profit margins.

01 "Losing money selling cars" becomes the new "selling point" of electric vehicles?

As of the first half of 2024, the Volkswagen brand's operating profit margin has fallen to 2.3%. The company has performed poorly in China, its largest market, and its electric vehicle sales lag far behind competitors because the latter have more price advantages (Extended reading: New energy vehicles "bloody battle" 100,000 yuan market). In addition, electric vehicle sales generally slowed down after European governments successively cut financial incentives for buying electric vehicles last year. In addition, the German government's policy of subsidizing companies that purchase electric vehicles expired on September 1, 2023.

02 European automakers cut forecasts on supply woes

The European Union is concerned that China's booming auto industry poses a growing threat to Europe's auto manufacturing industry. Last month, the EU announced that it would impose anti-subsidy duties of 17% to 36.3% on pure electric vehicles (BEVs) imported from China. In July, Volkswagen announced that it might close a plant in Brussels that produces Audi electric vehicles. The plant has been struggling with high costs and weak demand for the luxury model Q8 e-tron, which is the only model produced at the plant. At that time, the German automaker also lowered its performance expectations for this year, partly due to the potential costs involved in closing the plant.

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