Automaker Volkswagen has announced several plans to shut down or migrate its factories, signaling a strategic adjustment for the company in the global market. In particular, this is a response to a decline in demand for fuel vehicles and the rapidly growing competition pressure from Chinese electric vehicles (EVs).
Volkswagen's recent factory closure/migration plans mainly cover three locations: Germany, Belgium, and Nanjing. The fact that Volkswagen is considering shutting down a factory in Germany, a first in the automaker's 87-year history, highlights the severity of the challenge in its home market. Currently, Volkswagen has idle production capacity in two of its German factories.
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An analysis of Volkswagen's factory closure and migration plans reveals the following reasons: firstly, although Volkswagen's vehicle sales span worldwide, the global automobile sales data for the first half of 2024 shows an annual growth rate of only 3.3%, indicating a growth slowdown in the traditional automobile market.
In terms of EVs, despite the global EV market's annual growth rate reaching 21.6% in the first half of 2024, Volkswagen has not benefitted from this surge.
Looking at Volkswagen's main market, Europe, the annual growth rate for EVs in the region was only 1.6%. In the Chinese market, although the annual growth rate of EV sales reached as high as 33.5%, the main growth momentum came from domestic Chinese brands, which captured the vast majority of the market share.
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Volkswagen's automobile sales in the first half of 2024 reached only 4.348 million units, marking the lowest performance in the past two years. When compared to previous periods when sales exceeded 5 million units, it is clear that Volkswagen is facing the challenge of overcapacity.
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In terms of profitability, Volkswagen has experienced significant fluctuations over the past few years. The operating profit margin reached a recent high of 7.26% in the first half of 2023 but then began to decline, dropping to 6.33% in the first half of 2024.
This reflects Volkswagen's challenges in profitability, as well as its struggles with market competition, cost pressures, and the EV transformation, which have forced the company to resort to factory closures and relocations.
Credit: DIGITIMES Research
