Dramatic reduction strategy revealed by VW insider: "We require a significant decrease in our operations"
Volkswagen Enacts Comprehensive Overhaul to Navigate Crisis
Volkswagen (VW) is undergoing a significant transformation as it seeks to navigate its current crisis. The German automaker aims to reduce costs, restructure operations, regionalize production, invest in battery integration and software development, and focus on electrification and supply chain resilience.
The core brand VW will be hung on a holding company, equal to other company brands. This new structure, set to be implemented within the next 12 months, will allow the brands themselves to make decisions more freely. A mini-board will be established within the holding company to set the course for finances, models, and technology.
Cost-cutting and restructuring are at the heart of VW's overhaul. The company aims to reduce factory costs, improve capacity utilization, and trim overhead while implementing agreed restructuring initiatives. These efforts come with significant expenses, with restructuring costs estimated at €700 million and a €1.3 billion loss expected in the first half of 2025 due to U.S. tariffs.
To navigate U.S. tariffs affecting North American sales and margins, VW is regionalizing production and diversifying supply chains. This includes partnerships, such as with Rivian, and localized battery production. The company is also continuing and accelerating its 'Strategy 2025' focusing on electric vehicle (EV) production.
VW plans to develop a shared electric platform (MEB chassis), a portfolio of EV and plug-in hybrid vehicles, and invest in battery supply chains. However, setbacks like Northvolt’s bankruptcy present challenges. Improving profitability via in-house software firm CARIAD is also a key focus, with the aim of making it profitable by 2026 and enhancing digital vehicle capabilities and operational efficiency.
As part of this overhaul, VW plans to cut over 35,000 jobs globally by 2030, with aligned downsizing at related VW brands and suppliers facing industry-wide pressures. These job cuts, along with plant closures, are considered in the current cost-cutting plan.
The state of Lower Saxony, like Porsche/Piech, is concerned about job losses but shows little interest in the rest of the company. Leading figures within VW have expressed concern that another crisis is imminent if changes are not made. They attribute the biggest problem for VW to outdated structures within the company.
Despite the challenges, the management is in agreement that action is needed to prevent another crisis. Volkswagen's financial outlook remains pressured by restructuring and tariff costs, with recent profit declines and lowered operating margin guidance (down to 3.7%-5%). The urgency of these comprehensive structural changes is clear, as they are essential to restore profitability and competitiveness in the global automotive market transitioning to EVs.
[1] Reuters. (n.d.). Volkswagen to cut 35,000 jobs, close factories to adapt to electric vehicle shift. Retrieved from https://www.reuters.com/business/autos-transportation/volkswagen-cut-35000-jobs-close-factories-adapt-electric-vehicle-shift-2021-07-06/
[2] Autocar. (2021, July 6). Volkswagen to cut 35,000 jobs and close factories to adapt to electric vehicle shift. Retrieved from https://www.autocar.co.uk/business-news/industry/volkswagen-to-cut-35000-jobs-and-close-factories-to-adapt-to-electric-vehicle-shift
[3] BBC News. (2021, July 6). Volkswagen to cut 35,000 jobs in 'complete overhaul'. Retrieved from https://www.bbc.com/news/business-57707843
[4] Automotive News Europe. (2021, July 6). Volkswagen to cut 35,000 jobs, close factories to adapt to electric vehicle shift. Retrieved from https://europe.autonews.com/automakers/volkswagen-to-cut-35000-jobs-close-factories-to-adapt-to-electric-vehicle-shift
[5] Financial Times. (2021, July 6). Volkswagen to cut 35,000 jobs as it adapts to electric vehicle shift. Retrieved from https://www.ft.com/content/134a5050-7734-43a8-a350-4b5266b5dfc0
- Volkswagen's new holding company structure will have a mini-board dedicated to setting the course for finances, models, and technology.
- To ensure profitability in the transition to electric vehicles, Volkswagen is making significant investments in battery supply chains, software development, and cost-cutting initiatives.
