As shift to EVs matures, Volkswagen considers first plant closure in Germany

Volkswagen, on a cost-cutting drive as it transitions away from fossil-fuel vehicles, is considering whether it should close factories in Germany – a first since the company was founded 87 years ago in 1937.

In a statement issued on Monday, the German automaker revealed it could not rule out plant closures its home market, with Group CEO Oliver Blume quoted as saying: "The European automotive industry is in a very demanding and serious situation."

He cited competition from new entrants to the European market and highlighted the need to "act decisively."

"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," Blume said.

Volkswagen, which last year embarked on a cost-cutting drive to save €10 billion by 2026, has sought to cut costs through early retirements and worker buyouts, but now says that might not be enough.

The company is losing market share in China -- its single biggest market – with data for the first half of the year showing a 7 percent year-on-year fall in unit sales and an 11.4 percent decline in the Group's operating profit from the Middle Kingdom. This is mainly due to competition from local brands, in particular BYD, which posted record vehicle sales for the month of August.

Half-year results indicate the Group will not be able to achieve its €10 billion cost savings by 2026, the company said. 

VOlkswagen's plans for closure center around its eponymous Volkswagen brand, rather than its luxury Audi and Porsche marquees which operate at higher profit margins. Management reportedly considers one large vehicle plant and one component factory in Germany to be obsolete, reports say. 

Speaking to analysts on an earnings call last month, Blume reiterated the need for cost cutting at the world's largest automaker. "We have done all the organizational steps needed. And now it is about costs, costs and costs," he said. 

Thomas Schaefer, CEO of Volkswagen Passenger Cars, claimed the company's efforts to reduce costs were "yielding results" but that "headwinds have become significantly stronger."

Western automakers have long sounded alarm bells about the threat of Chinese EV competition, and their governments have paid heed. The US and the EU have already levied additional duties on electric vehicles imported from the Middle Kingdom. Last month, Canada followed suit.

China has retaliated by taking European authorities to court over the tariffs. The US tariffs have yet to come into effect.