‘A very serious situation’: Volkswagen could close plants in Germany for the first time in history

London CNN —

Volkswagen is weighing whether to close factories in Germany for the first time in its 87-year history as it moves to deepen cost cuts amid rising competition from China’s electric vehicle makers.

In a statement Monday, the German automaker, one of the world’s biggest car companies, said that it could not rule out plant closures its home country. Other measures to “future-proof” the company include trying to terminate an employment protection agreement with labor unions, which has been in place since 1994.

“The European automotive industry is in a very demanding and serious situation,” said Volkswagen Group CEO Oliver Blume. “The economic environment became even tougher, and new competitors are entering the European market. Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.

Volkswagen, which embarked on a €10 billion ($11.1 billion) cost-cutting effort late last year, is losing market share in China, its single biggest market. In the first half of the year, deliveries to customers in that country slipped 7% on the same period in 2023. Group operating profit tumbled 11.4% to €10.1 billion ($11.2 billion).

The lackluster performance in China comes as the company loses out to local EV brands, notably BYD, which also pose an increasing threat to its business in Europe.

“Our main area of action is cost cutting,” Blume told analysts on an earnings call last month, citing planned reductions to factory, supply chain and labor expenses. “We have done all the organizational steps needed. And now it is about costs, costs and costs,” he added.

A VW employee presents the new model of the electric Volkswagen ID 3 car of German carmaker Volkswagen with the brand's