Volkswagen's manufacturing facilities prepare for production cuts

Volkswagen AG narrowly avoided plant closures last year, and now parts of the compromise are about to go into effect.

Feb 17, 2025 - 07:43

Volkswagen's manufacturing facilities prepare for production cuts

If you’ve even glanced at automotive news in the past year, odds are you already know Volkswagen narrowly avoided plant closures late last year. At the final hour, the union and works council reached a compromise with Volkswagen to avoid plant closures and mass layoffs. Now, part of that compromise is about to come into effect, and VW’s manufacturing facilities are preparing for production cuts.

View of the Volkswagen Osnabrück GmbH plant.
picture alliance/Getty Images

Volkswagen plans to halve its production capacity

According to the Financial Times, Volkswagen’s production is set to be slashed as a part of the compromise that also prevented layoffs and facility closures until 2030. VW plans to halve its production capacity following a statement by Arno Antlitz, CFO of VW Group, that the company would only invest in competitive plants and that German facilities are fair game.

With production capacity getting cut in half, plants like Zwickau, Volkswagen’s first all-electric facility, will soon have to compete with other factories. Some facilities, including Zwickau and Dresden, will need to cut costs by 20% to keep production lines open.

Overall, Volkswagen will cut its production from 1.5 million units to just 750,000. Last year, VW’s German plants produced around 900,000 vehicles. Such a dramatic cut is a clear sign that VW doesn’t expect its European sales to grow, especially with Chinese competitors breaking into the market.

“...we have a market that is no longer growing and probably, in the future, will stagnate,” David Powels, Volkswagen CFO, told the Financial Times.

VW has promised to find alternative uses for the affected facilities

Volkswagen plans to keep its facilities open and workers employed until 2030, but the German automaker still plans to cut 35,000 jobs via early retirement and voluntary redundancy. Even so, VW’s production will certainly experience a dramatic change over the next five years.

Wolfsburg will take over the ID line’s production from Zwickau in 2027. As a result, Zwickau will only produce the Audi Q4 e-tron, but there’s still a future for the all-electric facility. Volkswagen has promised to repurpose the Zwickau plant for a future in car recycling, which will save roughly 1,000 jobs.

The future for VW’s Dresden facility is uncertain but not as bleak as it could be. Car production will come to a halt after 2025. Likewise, the Osnabrück factory will cease production after 2027. Notably, Volkswagen has stated they plan to find an alternative use for both facilities, but what that use could be is up in the air.

Volkswagen could fill production lines with Chinese EVs

With production capacity getting slashed in half, Volkswagen is looking for ways to make up for declining sales in Europe. As a result, Volkswagen’s executives haven’t ruled out partnering with emerging Chinese EV manufacturers to fill their production lines.

Powels, VW's CFO, has stated that they’re keeping all of their options open. With Chinese automakers like BYD racing ahead of legacy automakers when it comes to EVs, a partnership to keep production lines open could benefit both sides.

Last year, Volkswagen AG saw its European sales drop by two million vehicles compared to five years ago. Up until last year, China had been Volkswagen’s most profitable market, but rapid growth by Chinese manufacturers has put the German manufacturer between a rock and a hard place.

Final thoughts

Barring a turnaround in sales, it seems Volkswagen may be fading into the background as new automotive companies take the lead. While tariffs will prevent Chinese automakers from breaking ground in some countries, the fact of the matter is that China itself is crucial for success on a global scale. If legacy automakers fail to keep pace, they may find themselves quickly overcome by up-and-coming foreign manufacturers.

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