Volkswagen to slash production capacity and workforce in Germany
- Volkswagen's group sales in China fell by 9.5% in the previous year.
- The automaker is restructuring operations, which includes reducing German production capacity and workforce.
- Volkswagen stock is estimated to be reasonably valued at around $10 per share, with a potential worth of $12.
In 2024, Volkswagen faced significant challenges leading to decreased sales and profits, particularly in China where group sales fell by 9.5% to 2.9 million units. This decline prompted the company to intensify localization efforts and plan the introduction of over 30 new models in China within the next three years, which will include internal combustion engine (ICE) vehicles as well as new energy vehicles tailored for local buyers. Volkswagen's commitment to investing in the U.S. is steadfast, aiming for long-term growth despite the high costs and sluggish electric vehicle (EV) demand currently affecting the industry. The German automaker has acknowledged the weak macroeconomic climate, intense competition from lower-cost Chinese manufacturers, and high domestic costs as significant hurdles in their path to profitability. In order to adapt to these pressures, Volkswagen is undergoing a comprehensive restructuring of its operations. This includes cutting over 700,000 units from its production capacity in Germany and reducing its workforce by 35,000 primarily through voluntary departures. These strides are aimed at restoring profitability in Europe, where demand has been dwindling and operational costs soar. Further, Volkswagen is also shifting its focus to the future of electric vehicles. The company's Wolfsburg plant is set to evolve into a central hub for its EV production, catering to the need for affordable EVs to regain lost market share. By standardizing platforms across its extensive range of brands, Volkswagen expects to realize economies of scale, thereby potentially enhancing their overall margins. Moreover, Volkswagen's long-term strategy includes substantial investments in battery facilities, reinforcing their goal of achieving backward integration within their EV operations. The successful IPO of their luxury brand Porsche in 2022 provides a precedent, and there is speculation that Volkswagen may consider a similar route for its Lamborghini supercar brand, capitalizing on the current market enthusiasm for luxury and performance brands.