Slimming diet for Volkswagen in full electric conversion

(Dresden) The “glass factory”, a showcase for Volkswagen which produces electric vehicles in Dresden in its vast transparent workshops, sees its future threatened, illustrating the tumults of the transformation underway at the German manufacturer.

Jostled by its competitors and plagued by profitability problems, the group is questioning the maintenance of the production lines of the small factory in the Saxon capital, in the east of Germany, according to several media.

Volkswagen acknowledged this week that it was evaluating “how the site can be oriented sustainably and in such a way as to ensure its future”, even if “no adaptation is planned in the short term”. The 300 employees have a job guarantee until 2029.

Eliminate activity linked to electric cars at a time when manufacturers are supposed to accelerate their transformation? The strategy may seem paradoxical. European manufacturers all have their sights set on the 2035 deadline with the ban on the sale in the EU of new models equipped with combustion engines.

But “Volkswagen has three problems”, explains automobile expert Ferdinand Dudenhöffer to AFP: “The automobile market is weak because the economy is weak, subsidies for electric cars are removed or reduced and the ID family (range electric from Volkswagen) lacks attractiveness,” he lists.

In addition to the uncertainty surrounding the Dresden factory, the German giant announced last week the end of 269 fixed-term contracts at another site in the region, in Zwickau, the group’s largest electric car factory, “in due to the situation in the automobile market.

Cost and attractiveness

For Volkswagen, the leading European manufacturer, increasing the supply of electric vehicles is only one of the parameters of a complex situation: the purchasing power of customers is weighed down by inflation while it faces fierce competition from the American Tesla and Chinese manufacturers who produce their models at much lower cost.

Result: if the group’s global sales of all-electric vehicles showed good growth of 50% in the first half of 2023 year-on-year, all analysts anticipate a slowdown in the months to come.

“Currently, there is a certain reluctance to buy on the part of consumers,” Volkswagen CFO Arno Antlitz admitted to journalists this week.

At the German manufacturer, the hunt for costs is on. Priority target: the historic Volkswagen brand, yesterday inventor of the Golf and the Passat which must gradually take over from electric models.

The brand’s profitability has been at half mast for years, compared to equivalent ranges from other manufacturers, and Oliver Blume, CEO of Volkswagen, launched a recovery plan before the summer targeting costs which are becoming problematic given the decline suffered in China, the group’s largest market.

Subsidies

This question of costs is “the central problem” of the group, believes Stefan Bratzel, director of the CAM institute.

With an average of 35 cars produced per day, out of the approximately 40,000 that leave Volkswagen factories around the world, the Dresden site could be sacrificed to the economies of scale that Volkswagen wants to achieve.

At this stage, there are “no plans to stop production” of the ID.3, Volkswagen’s flagship electric model, on the site, insisted Christian Sommer, spokesperson for Volkswagen in Saxony, after the discussions between staff and management on Thursday.

The evolution of electric vehicle sales curves will be decisive.

In Germany, the shutdown since 1^er September purchase bonuses for commercial vehicles and reduction of aid for individuals from 1^er Next January will deal a blow to the automobile market, experts warn.

Hence the challenge for European manufacturers to offer electric models that are sufficiently accessible to fit into the budget of the middle classes. A niche in which Chinese manufacturers have a head start.

Volkswagen’s future ID.2 for less than 25,000 euros is not expected in 2025. For the electric version, the Golf GTI, the horizon is 2026-2027.

The leading European group thus has “two to three complicated years ahead of it”, predicts Ferdinand Dudenhöffer.