On October 30, the management of the Volkswagen Group, known by the stock symbol VOW.DF, engaged in a second round of negotiations with trade unions regarding the closure of German factories, coinciding with the release of the company's third-quarter financial reportThe bottom line: not very promising and the situation is severe.
The reported revenue for the third quarter was €78.478 billion, equivalent to 606.376 billion RMB, marking a 0.5% year-over-year decreaseOperating profit stood at €2.855 billion, translating to 22.111 billion RMB, which is a staggering 41.7% plunge compared to the previous yearCumulatively, for the first three quarters of 2024, Volkswagen's total revenue reached €237.279 billion (183.338 billion RMB), representing a 0.9% increase, while operating profit fell to €12.907 billion (99.729 billion RMB), down 20.5% from last year.

The stagnation in revenue growth can largely be attributed to a decline in vehicle sales

During the third quarter, the Volkswagen Group sold 2.176 million new cars worldwide, reflecting a 7.1% year-on-year dropSales of battery electric vehicles (BEVs) were even more pronounced, decreasing by 9.8% to 189,000 unitsConsequently, the company was compelled to lower its delivery expectations for the year, projecting an annual total of 9 million new vehicles, which is 240,000 units less than last year.

In September 2024, Volkswagen adjusted its performance targets for the year: revenue estimates were decreased from €322.3 billion to €320 billion (24,790.08 billion RMB), leading to a profit margin reduction from 6.5%-7% down to 5.6%. Amid the persistent decline in performance, Volkswagen's CFO and COO Arno Antlitz emphasized the urgent need for major cost-cutting initiatives and enhancing operational efficiency through the implementation of a new performance plan.

Currently, the automotive market in Europe is not only witnessing dwindling sales but is also facing ramped-up competition from Asian manufacturers

• US November CPI Seals the Deal on December Rate Cut
• ETFs Leading the Tech Charge
• Nikkei 225 ETFs See Wild Swings
• Leading the Way in New Energy Vehicle Production
• Evergrande's Losses Exceed 800 Billion: Debt Restructuring Crucial

Under this dual pressure, Volkswagen is resolute in closing underperforming plants, a drastic measure that has not been taken in the past 87 yearsSuddenly, a “winds of change” have swept through the ranks of Volkswagen, affecting even those situated over 7,000 kilometers away in China.

The issues plaguing Volkswagen are multifaceted, and the company attributes its mediocre performance to several factors including rising fixed costs, increased restructuring expenses that directly impact profit, global supply chain shortages, and the complexity of the current macroeconomic environmentAdditionally, Volkswagen has pointed out that its luxury vehicle lineup is undergoing a comprehensive update.

As per the financial report, Volkswagen's cash reserves at the end of the third quarter were €51.392 billion (equivalent to 39.8129 billion RMB), exhibiting a quarter-on-quarter increase of 135.83% and a year-on-year rise of 77.93%, indicating a relatively robust cash flow.

Nevertheless, the company is bracing for a tighter financial belt

Management has stated that to achieve future success, cost reduction is crucial, particularly in GermanyMoreover, even if market share is heavily squeezed by competitors in China, Volkswagen is unwilling to sacrifice profits for the sake of chasing market growth.

The Volkswagen Group is simultaneously grappling with decreasing sales and the pressures of electric vehicle transitionIn December 2023, the group announced a “thrift” initiative aimed at cutting costs by €10 billion (774.69 billion RMB) before 2026, targeting a return to an operating profit margin of 6.5%. During the Q3 2024 earnings call, Antlitz remarked that 2024 and 2025 would be the most trying years for the company.

In reality, Volkswagen's challenges reflect the broader predicaments faced by the German automotive industry

According to a survey by the Ifo Institute, the utilization rate of production capacity in the German automotive sector has plummeted to 78%, with over 43% of participants reporting insufficient ordersWithin Volkswagen, the Osnabrück plant has the lowest utilization rate, at less than 20%.

The underutilization of production capacity has prompted Volkswagen to plan the closure of two plants out of ten in Germany, which would significantly impact the livelihood of tens of thousands of employees, with remaining staff potentially facing a minimum 10% salary cut and foreseeable wage freezes in 2025 and 2026. This decision has met with opposition from trade unions, compelling even the German government to intervene.

Bloomberg Intelligence analysts forecast that by closing factories, Volkswagen could save approximately €2.5 billion annually (193.5 billion RMB), which translates to roughly €1,900 (1.47 million RMB) in savings for each vehicle sold in Europe.

With the rapid growth of new energy vehicles worldwide and a saturated traditional automobile market coupled with diminishing demand, Volkswagen faces immense pressures akin to those encountered by other legacy manufacturers

Although German trade unions and politicians are urging the company to ramp up production of electric vehicles domestically, Head of the Volkswagen brand Thomas Schäfer has revealed that operational costs in German factories exceed target costs by 25%-50%, and in some cases costs are double those of competitors, which does not align with production efficiency.

“Today, the key to survival is no longer scale but speed,” stated Thomas Schmall, a member of Volkswagen's board, in a meeting“The electrification window is closing; we have two to three years left, and if we don't accelerate our pace, survival will be difficult.”

Empowerment in China: The 2026 Assessment
As the world's largest automotive market, China has always been a critical region for the Volkswagen Group

Between January and September 2024, 2.793 million vehicles were sold in the European market, reflecting a 0.8% year-on-year decline, while the Chinese market saw sales of 2.0566 million units, a significant decrease of 10.2%. In the third quarter alone, sales in China were 711,500 units, down 15% year-over-yearNevertheless, the BEV sales in China were impressive, achieving 57,500 units in Q3, up 5.2% year-over-year, resulting in total sales of 148,000 units for the first three quarters, marking a 26.5% increase.

To adapt to the fiercely competitive automotive environment in China, Volkswagen has moved away from operating in isolation and has chosen to strengthen ties with local partnersThis includes collaborations with XPeng Motors to develop the CEA electronic architecture and new vehicle projects with SAIC Group under the Audi brand.

Additionally, Volkswagen has forged joint ventures in the smart driving and intelligent cockpit sectors with Horizon Robotics and Zhongke Chuangda respectively.

In 2024, Volkswagen celebrates its 40th year since entering the Chinese market, which many executives view as the company's second home

With a strategy centered on "In China, for China," the group currently employs approximately 90,000 people in China and has established collaborative partnerships with major players such as SAIC Motor, FAW Group, and Jianghuai Automobile Group.

“In a race, starting fast doesn't mean finishing firstRight now, we are more focused on profit rather than market share, allowing us more resources for future research and innovation2026 will be our pivotal year,” said Ralf Brandstätter, Chairman and CEO of Volkswagen China, adding, “Currently, achieving profitability from electric vehicle business is extremely challenging, and we must actively optimize our cost structure to ensure the group remains profitable, even in the face of the harshest competition.”

By 2026, Volkswagen intends to launch at least six new pure electric models in the Chinese market, including four that are similar in size to the Tiguan, priced around €20,000 (15.49 million RMB), and two B-segment models developed in collaboration with XPeng

Additionally, three electric vehicle models are being developed by Audi in collaboration with SAIC Motor, with the first expected to debut next yearBy 2027, Volkswagen plans to introduce 40 new models in China, including 20 in the new energy category, which encapsulates both pure electric and hybrid models.

The Volkswagen Group is doubling down on strengthening product and technology research and development in China while forming new partnerships with local high-tech enterprises, all aimed at pooling resources and revitalizing its operations.

In the past, Volkswagen traditionally developed models in Europe before marketing them in ChinaHowever, this approach has become increasingly inefficient given the speed of processes and the evolving market landscape

Therefore, Volkswagen’s research authority within China has shifted from Wolfsburg to Hefei, which includes the existing software company CRIAD, along with a new entity—Volkswagen (China) Technology Co., Ltd(VCTC)—responsible for the crucial development work on the new car platform CMP.

Volkswagen has delineated a clear vision for its future development in China with its “2030 Target,” which is to maintain its position as the leading international automotive enterprise in the country and continue ranking among the top three in the Chinese automotive marketBrandstätter has indicated that 2024 and 2025 will be pivotal in the group’s transformation, stating, “Although we are facing difficulties and challenges, we are well prepared.”