ev.news Europe: Volkswagen Just Put Four EV Factories at Risk

0:00Welcome back to the podcast. Welcome to EV News, Europe. Volkswagen just put four EV factories at risk. Volkswagen is preparing to quit building cars at four German factories and every one of them builds EVs. On Thursday this week, Volkswagen's supervisory board voted unanimously, a day ahead of schedule, actually, to approve something that they call future plan 2030. That is 50,000 more job cuts by the end of the decade. The model range gutted and cut roughly in half by 2035 and four German plants placed under a review that could end vehicle production at all of them. Those four plants are Emden, Zwickau, Hanover and Audi's Neckar Zlum. Zwickau was the first large car factory in Europe converted entirely to electric vehicles and Emden was the second. Hanover built the ID buzz and Neckar Zlum builds the E-Tron GT and the A6 E-Tron. Volkswagen spent something

1:00like 2.2 billion euros converting to Zwickau and Emden alone. Six years later though, the company says it can't afford and it can't demonstrate a competitive future for either of them. So the question isn't, is Volkswagen in trouble? We knew that already. The question is why the factories electrified first and hardest of the ones it now says it can no longer justify. And what that tells you about how Europe built its EV industrial policy. Welcome back to one of the bonus shows that we do on EV news. Normally we bring you EV news daily, China and briefly. I had an EV news tech show this week and an EV news Europe show for the weekend, actually. We'll get to dig into what's really happening. A Volkswagen huge day and necessarily a bunch of huge headlines yesterday, at least on Friday. They didn't get them all right though. Many of the headlines claimed that Volkswagen was closing four factories that they were laying off over 100,000 people.

2:00So much of this isn't set in stone yet and there's going to be a lot to play out. But let me pick through the truth for you so you know what actually happened. Let's start with the numbers because they're big enough to lose your grip on. 50,000 additional roles will go. That's about 8% of the group's global workforce as it stood at the end of last year. The total workforce number differed by the way when I was researching this podcast. I couldn't find an exact number if fluctuated. I'll go with what FT dot com says because I subscribe to FT dot com because they did good coverage of the car industry. So one of the things I pay for is I'll go with them. They're a reliable source. They say the workforce is 620,000 roughly half of the cuts land in Germany. Management roles are included. Volkswagen says it wants leaner leadership clearer accountability and shorter decision chains. Crucially, this is the second tranche. It sits on top of around 50,000 reductions agreed across VW Audi Porsche and carry out the software firm since 2024. Add them together and you get

3:04that total number that was reported of 100,000 jobs. So this wasn't an announcement of 100,000 jobs, but that is somewhere around 15% of the group within six years of negotiations. It's huge really. It's the largest restructuring in the company's nine decade history. And that's before we talk about the product. The global model lineup gets cut by 50% over the next 10 years. Configuration complexity. Trims, engines, transmissions and options get cut by 75%. To give you a sense of what that means in practice across Audi Bentley and Lamborghini, they're currently around 2,600 different seat configurations available. It's done half thousand seat configurations. That's going to go to 100. Audi's boss Gernaud Dilner has said that he'll take the number of steering wheels from 100 down to five. They have a hundred steering wheels at Audi. That's insane. Both platforms and software

4:07are getting consolidated yet again. About a third of the group's non-core businesses and investments get sold or reorganized, even the property portfolio will be under review. The big target is 9 million vehicles a year and a 9% operating margin by 2030. That would be around 31 billion euros of operating profit. Today, the group runs at just 3.8% margin. Now, those plants then, Volkswagen's language is careful. And some of the coverage this week didn't pick up on the nuance of this. It says it cannot currently secure what they say is a competitive future production. They didn't so were closing the plants. I have to be very careful what they say. This will go through the courts. A competitive future production for M.D. Svick-Hauhan over and Neckar Zun. Hey, by the way, I didn't learn German at school. I'm doing my best. If you speak German, I'm really sorry if I'm not getting these names absolutely perfect. They say that they will

5:09review them when the existing allocation of vehicles runs out at staggered points from 2031 to 2034. Each site has until June 2027 to come up with an alternative production concept failing that and maybe closure or maybe major structural reallocation is the outcome from 2031. Those four sites employ more than 45,000 people between them and represent around 750,000 units of annual capacity. Volkswagen admits its European plants can build more than 500,000 cars a year beyond what anyone wants to buy. That's the future of Volkswagen, which the old boss Herbert Dees couldn't achieve and it cost him his job. Yet the intervening years may have weighed more heavily on the board. The plan is fewer people, fewer models, fewer options and potentially fewer factories. What is the labour deal? Why does it matter? Here's the bit the people outside Germany

6:14consistently get wrong or underestimate half the seats on Volkswagen's supervisory board belong to the labour representatives. Lower Saxony, the area in which it's in, also appoints to shareholder representatives of the board and the state owns 20% of voting rights. Under the Volkswagen law and Volkswagen's own supermajority rules, that gives lower Saxony a blocking position on shareholder decisions. The Porsche and Piac families hold 53% of the voting rights through Porsche SE. They've been pushing hard for faster action as dividends are coming under pressure. So a unanimous vote was by no means a formality. It was a negotiation and labour was paid for it. IG-MTAL's Christian Benner and Works Council Chief Daniela Cavallo said the compromise had prevented a dangerous escalation. They stressed two things. No plant closure have been agreed by the way and the proposed separation of the passenger car business from the components

7:18business is off the table for now. Cavallo's line was the future plan 2030 is a necessity to lead the group into the next decade without placing the burden of that transformation solely on the employees. Benner and Cavallo also said the work is only just beginning. We will continue. We what we will continue never to accept is the burden being placed one side only on the employees. Well that framing keeps the old settlement from December 2024 firmly intact by the way. Under the deal, Volkswagen committed to about 35,000 German job reductions by 2030. That would be through attrition, retirement, no dismissals. Job security was guaranteed to the end of the decade. Plant closures were ruled out under the old settlement two years ago. But this week's plan stacks that second larger tranche on top whilst keeping all the existing guarantees. It just moves the real decision two years out to June 2027. That's the deadline to have a plan.

8:24Whether you read that as a win for the labour movement or a polite defeat, I guess depends on on where we go next. So let me tell you how we got here. Ben, I need you to take you back to what I was reporting on. Evie News back in September 2024. Volkswagen tells staff it's considering closing German factories for the first time in its history. The works council says no, we'll resist bitterly. And that awesome close to 100,000 employees walked out over proposals that included a 10% pay cut and three plant closures. Fast forward to January of this year, Oliver Bloom, now leading the company in the CFO, Arno Antletz, present a group wide program to cut costs by 20% by the end of 2020. Rotors and manager magazine reported it was described internally as massive and exempting no brand in June this year, manager magazine reveals an internal document called Group Target Blueprint 2030. The secret document involving four German factory closures,

9:30and up to 100,000 job cuts, was public for the first time. German public reaction at the time was disbelief, really. Now Bloom put a 40 point restructuring plan to the board, which leads to employees then staging protests at more than a dozen German plants. Around 400 people gathered outside the management building in Vulsburg with whistles and union flags at the time. The meeting they were having inside ran for more than five hours, and that plan failed. The board announced only the measures that didn't name specific plants. The 50% model cut, the 75% complexity cut, the 9 million capacity ceiling, factory closures and job cuts were completely blocked. But that was only in June, and here we are today, and it's why this week matters. So, this was the case, according to the media reports coming out of Germany, that the new boss Bloom told the board the company's position was more than critical, and warned that even 50,000

10:36further cuts might not be enough. And the financials do rather back him up. In the first half of this year, revenue was 158.1 billion euros. That was down 0.2%. Compared to the same time last year, operating profit was 5.9 billion down 11.6%. Operating margin was down from 4.2 to 3.8%. Deliveries just under 4 million down 8.4%. And China is where Volkswagen is feeling the most pain. Deliveries there down 26% in the first half of this year alone. But the real damage is upstream of the final sale. And I've been reporting on this on a spin-off podcast, EV News China. We launched a year ago as a temporary show, and it's still here a year later because there is so much happening in China, affecting not just the cars that we might be able to buy from names you never heard of, but what it's doing to the industry. In 2019, Volkswagen's Chinese joint ventures contributed

11:404.4 billion euros in operating profit. Guidance for this year is between 200 and 600 million. The actual first half figure was 184 million. That's down 63% on the same time last year. Look, for decades. Chinese profits paid for German factories and workers. And that support, because of the rise of the domestic Chinese EV market, that has collapsed spectacularly. And it happened so quickly. Add in US tariffs, which to Speagle reports pull around 5 billion euros a year out of the group. And then the cost gap according to internal presentation material reported by the Speagle, the average cost to assemble a car, a German plant is 6,500 euros, which seems reasonable to make a car in Germany, 6,500 euros. But then it doesn't mean anything without context. Bloom put that number at B.Y.D.'s Hungarian plants, and not even in China, but B.Y.D. Hungary

12:46from 2000 euros to build a vehicle. And he wants to get Volkswagen down to 3000. The reason why the German automotive industry is fighting tooth and nail for their continued employment has a lot to do with the conditions that over the last few decades, the unions have bargained for hourly labor cost. This is per the VDA, by the way, hourly labor cost is 62 euros an hour. Compare that to the Czech Republic, and it's 21. Well, Bloom's public summary of the whole environment, he said this and I quote, we're in the biggest transformation in the history of the global automotive industry. Everyone is affected by US tariffs, the collapse of the Chinese market and price erosion by geopolitical conflicts by the ever harder competition in Europe, and by sweeping, sweeping regulation. End quote. All right, we'll take a break. A quick break and we'll come back and we'll save the part that nobody really said out loud this week, and we'll conclude our evening Europe episode as well, stick around, back in a moment.

13:50All right, welcome back to a special weekend podcast. We get our teeth into really analyzing what happened this week with Volkswagen and digging past some of the, let's say, more sensational headlines. Here's the bit that actually explains the closure of the plants, which some of the coverage missed in the rush to rights clickbait headlines about Volkswagen shut down four factories, and they were binging off the say at brand, which one very, very well known, or to most publication, were very confident in their reporting that say out is going from 2029, Volkswagen have denied that, that that's not the reality at least which I can report. That's what a publication said, but according to the Volkswagen themselves, then everything's under review. Anyway, and I want to tell you, I don't want to kill off really one lazy idea. This is the lazy idea, which I hear, I see in the comments section and on discussions, the lazy idea that Europe

14:52electrified its car industry and all the valuable bits go overseas. That's simply not true for Volkswagen at least. Cuzzle builds the electric drive motors for the MEB platform motors gearboxes housings pulsing voters. Braunschweeg, oh, I've probably got that massively wrong. I'm sorry, my German listeners or German speakers brown. Braun, Braun, Braunschweeg, I'm sorry, develops and builds the battery systems for MEB. Soltskitter makes rotors and status that go inside motors and hosts a cell gigafactory. Volkswagen says it has now built 5 million electric drive units globally itself, including the APP 550 units at Castle alone. That's the real high value German manufacturing and that's not going anywhere, by the way. So the problem isn't the value has left Germany. That is a misconception. The problem is where inside Germany, that value now sits. So think about

15:56what an integrated combustion engine plant used to be. Engines, gear boxes, exhaust, final assembly, the expensive work and the assembly work was all under one roof, the same industrial complex effectively. The value and the jobs were tied to a location. Now have a look at how I've reported over the years on how Volkswagen built out their electric network. The component sites are hubs. Castle doesn't supply one factory. Volkswagen's own information says Castle builds electric drive units for the MEB vehicles all across Europe and North America. Braunschweeg, supplies battery systems to the platform, not to one particular plant. Solskjaer supplies the motors that go into all of it. A handful of specialist sites feed every assembly line in the entire assembly network and that is the story really that no one told this week. Because if the next ID4

17:01is assembled in the Czech Republic in Mladobolislav instead of Emden, well the order book at Castle doesn't change. The German content of the car doesn't change. All the changes is the move of German assembly at the final part. Now look at the four names again on the chopping block. Emden, Zvić, Hanova and Neckar Zunum. Every single one of those is vehicle assembly. Hanova does parts and assembly. Hanova does build the ID bars actually if I'm being correct. It assembles MEB battery systems. It makes castings. They do some of the fast charging hardware at Hanova, I think. That's on the list because it makes vehicles. The exposure here isn't because of German engineering or German weakness or anything like that. It's just the assembly of vehicles and how the company is now set up. The labour hours point in the same direction. Data from Alex

18:02Partners, cited by ILO, puts assembling a combustion engine at 6.2 working hours. Compare six hours to make an engine to an electric drive unit 3.7 hours. Electric propulsion is, you know, you and I know this mechanically simpler. One of its genuine virtues, but it means the hours that used to sit inside the vehicle plant have moved to the component plants or have disappeared entirely. So what's left at assembly is the part every factory on earth can be measured much more simply on. How many of them do you build? How quickly do you build them and what's the cost? How many of them are being sold? How many are people buying? And what does everything cost to put the nuts and bolts and screws in place? And that's the trap. Svikow and Emden did the conversion better than anyone in Europe. Took 1.2 billion euros at Svikow, I think. And they waived off their last combustion car. It was a Golf R in June 2020. It became a 330,000 pure electric

19:07plant. ID3, ID4, ID5, Q4, E-Tron, Cooper-Born, all made there. In many ways, the poster child. But last year, it only built 212,000 cars. Rotor's cited industry data puts its utilization at 88%, but by 2030, Volkswagen say that'll be at 42%. Utilization rate across Volkswagen's German plants, the average is around 81%, now not a disaster, but by 2030 the average will be 73%. Because once your factory's job is just final assembly and final assembly is the one job that transfers cleanly to to Bratislava, being excellent at it is not the same as it was. So let's talk about the silent exits of how Volkswagen will navigate these choppy waters. The employment security agreement that bans redundancies expires on the 31st of December 2030. So that's the

20:11deadline, which if you want to do stuff before then, is going to be a real fight. The first production wind down after this review came the day after 2031. The leaked internal documents reported by Vertschaf the Vokka and Handelsblatt, the successor models already have new addresses, and they won't be in the factories that they were going to be. In the next generation, ID4 from Emden goes to Czech, that's the Milada Bollislav, the Q4 successor goes to Bratislava, and the T8 goes to Poznán. Volkswagen hasn't confirmed those additional allocations, I treat them as reported internal planning, not production decisions, but German media is also flagged and untested legal reading, simply allowing production to end may not require the super advisory board to approve anything that interpretation has not been tested in court. But if it survives

21:11a challenge, the route's obvious, allocate successor models to lower cost plants when the current model is, and the current run of those vehicles comes to a natural end. Don't try fighting employment guarantees, just let them simply expire. And what about the factories? They would gradually run out of cars to build. There'd be no dramatic closure vote, no deadline day, it would just be a gradual wind down. And management could argue it completely honored the wording of the agreement from 2024, of not to lay anybody off, and Cavalóz on arithmetic using internal notifications, obtained by Handelsblatt puts the extreme scenario, 115,000 jobs no longer required. 25,000 German cuts from the new tranche and 50,000 already agreed and around 40,000 tied to those four plants. If no new vehicles were assigned to them, Handelsblatt was clear, it's not a target, that really

22:12big number. It's just a worst case scenario, but industry analysts, another 50,000 cuts could touch more than 200,000 jobs by the time you had suppliers, and you need to add logistics in it, and all the towns and the economies and the people that sell the sandwiches on the lunch run. We haven't even touched Detroit or China yet, but we won't do that today. So what does it mean? Well, three, I think three things to take away because we've gone on too long already. Number one, this is a demand verdict. This is not technology, this is not German technology being not up to it. This is a demand verdict. Volkswagen isn't retreating from EVs in any way, which I saw reported this week. The investment package, which would be required is enormous, and new EV programs are continuing, a pace is retreating from the volume assumption underneath them. The one million EVs a year Europe was supposed to absorb, didn't arrive, 500,000 units of European over capacity, looks bad when it's red ink. Number two, Europe's EV industrial policy

23:14protected the wrong thing. Look at what's actually in the plan and what isn't. Volkswagen's German component network, Carzel, Branchefig, Saltzgitter, none of those are at risk. It's the German assembly industry. Cells drive units, battery systems, power electronics, and software, they're all the sticky part, the work that anchors a region for long-term job security for the next 30 years. Volkswagen's keeping all of that in Germany. The question for every European government watching this is whether they did the same thing or whether they subsidized the ribbon cutting of a new factory and didn't think things through. Lastly, nothing is settled yet, by the way. Lower Saxony's premier Olaf Lees says that it's currently unthinkable that they would let vehicle production just end at Emden Hanover and argues that cuts, all cuts should be falling outside of Germany. UBS's Patrick Hummel said that there is necessarily an obvious use case for

24:16these plants and expects real closures eventually. Further than and, Dudenhofer thinks nothing closes except possibly Neckarsselum with final cuts landing at maybe 30 to 40,000, whereas the head of Volkswagen, Oliver Bloom, is floating other options for those factories. They could turn into defense workers or humanoid robots. That tells you how wide open this thing still is. Will there be a need for humanoid robots to be coming out of car factories in Germany? I don't know. UBS puts restructuring costs up to 7 billion euros, Bank of America said 10 billion. And the governance question splitting the Volkswagen brand from the components business was never resolved. Shares jumped 9% yesterday on the same day that Xiaomi with their very impressive

25:17SU7 or Su7 and YU7 or U7 part of a thousand devices that will connect to your smart home and your car and your smart digital life on the same day that Xiaomi announced their entering Europe next year and their starting in Germany. Wow. So Volkswagen bought themselves a little bit of time to come up with a plan. Everything else, the models, the jobs, all part of Germany's post-war industrial settlement, all of that will follow in 2027. And that's your podcast for today. It's Evie News Europe. Enjoy it. Anyone in Germany who listens? Am I reading your country right? Anyone who listens in the automotive industry? More insight than I have? Am I reading it right? I'd love to hear from you and I'd love to get your feedback. Thanks for listening. See you on the next one.