### Volkswagen's Crisis: Germany's Industrial Decline and Challenges

Volkswagen embodies Germany's industrial decline, facing unprecedented challenges in electrification and competition from China.

### Volkswagen's Existential Crisis: Navigating Industrial Decline and Electric Transition
* 🏭 Europe's largest economy is facing a significant industrial decline, with Volkswagen at the center of this crisis, marking its **most serious struggle in history**.
* 💸 The company's market cap has dropped **tens of billions of euros**, reaching lows reminiscent of the **financial crisis and the emissions scandal aftermath**, necessitating **€17 billion in cost savings**.
* ⚙ For the first time in its 87-year history, Volkswagen is considering **factory closures in Germany**, creating tension between management, its workforce, and local governments reliant on the company.
* 🚗 Despite generating **€320 billion in sales** in 2023, equivalent to **7.5% of Germany's GDP**, Volkswagen is struggling with the transition to electric vehicles, lacking a compelling "**People's Car**" to drive EV adoption.
* 🇨🇳 Compounding its challenges, Volkswagen faces fierce competition from Chinese automakers who have gained **significant market share**, while the company underestimated the competitive threat from **local manufacturers**.
* 👷 The potential factory closures are particularly concerning for Volkswagen's workforce, as the company's presence in locations like Wolfsburg is **critical to the local economy and job stability**.
* 🤝 The management's restructuring efforts, led by CEO Oliver Blume, face opposition from **powerful employee unions and regional government interests**, complicating the company's ability to **implement necessary cost cuts**.
* 🌍 With looming tariffs on exports to the US and competition intensifying globally, the future of Volkswagen as it currently exists is **uncertain**, prompting discussions about **significant changes within the company** in the coming years.

Europe's biggest economy is confronting
the most symbolic chapter yet in its story of industrial decline. And the great icon of Germany,
incorporated, is at the center of the crisis. Volkswagen epitomizes German engineering. This is probably its most serious struggle
in its history.

The fundamental underpinnings of the company are falling away from it. As are tens of billions of euros
of its market cap value, which has plummeted to lows
not seen since the aftermath of the financial crisis
or VW's emissions scandal.

Management needs to find
€17 billion in cost savings to stabilize the business, and it's
ripping up its rulebook to find them. Volkswagen's historic move to
consider factory closures in Germany for the first time
in its 87-year history.

That has pitted Europe's largest carmaker
against its huge workforce and the governing bodies of cities
built around its plants, and has left everybody
asking an existential question... Cars are integral to Germany's
modern economic and industrial identity, a pop cultural export
and political lightning rod.

87-year-old Volkswagen embodies
this on a global scale. It employs 680,000
people around the world. It has dozens of production locations. Millions of people, workers
and other industries are reliant on the business
that they get from this company.

It owns several household names. Some of those households
are very wealthy indeed, while others descend from
VW's principal demographic. There was a big celebration in Germany
to mark the one millionth “People's Car” since the war.

The whole idea of the 
People's Car was that every individual in the country
would be able to afford one. Decades later, in 2023, VW’s portfolio generated 
€320 billion in sales, equivalent to about 7.5% of Germany's
entire GDP from that year.

Which sounds pretty healthy. So what's going wrong? First, electrification. You could arguably chart
the current crisis to the diesel scandal in 2015; it cost the company billions of euros in fines and recall costs. And it forced a rapid pivot towards
electric vehicles

that the company wasn't really well
prepared for. They really wanted to create
a vertically integrated supply chain. Part of that included creating 
their own battery-making facilities and creating their 
own in-house software unit. The problem is, creating software
is very different than making cars

Tesla is so far ahead
because it's good at all of these things: the batteries, the vehicles
and the software. VW is not. In the combustion engine era, they could
still make cars that people wanted. The transition to electric vehicles

is they're not doing well with making cars
that people want to buy or that they can afford. This is reflected by slumping 
registrations for new EVs in Germany. For the majority of the months last year, sales have been down compared 
to the year before.

In the 21st century, VW lacks an electric  “People’s Car” to stimulate 
German EV adoption. Volkswagen is emblematic of Germany's
industrial struggles right now. And so the business model
and the factors that led to Germany's

decades-long, kind of stable,
successful economy is at threat. Which brings us to the second
big problem: China. VW has been active in the world's
second biggest economy for decades. But while China has been dealing
with its own economic slowdown,

its carmakers have been churning out competitive electric vehicles
at VW's expense in particular. Just look at the changing
makeup of China's EV market. Local manufacturers
have taken considerable share, while German brands,
including VW's, have steadily declined.

They slept on the competitive threat
that Chinese carmakers pose. The expectation
that German cars are just better. It wouldn't be controversial
to say that Volkswagen, through its decades of success in China, grew
a bit arrogant about its position there.

VW has company in its struggle
with macroeconomic headwinds. The European Commission is fighting back
on behalf of EU carmakers, and in late 2024 introduced
controversial tariffs on Chinese vehicles. And so to VW's third problem: its workforce.

Volkswagen considers its first
ever factory closures in Germany in an effort to cut costs as Europe's
car industry struggles. The Volkswagen brand has ten production
locations within Germany that both make cars and components. Volkswagen management has said
that as many as three of those factories

could be at risk of closing
or of restructuring. The pressure on VW's
workforce is felt keenly here - Wolfsburg, in the German state
of Lower Saxony. Wolfsburg is absolutely the symbol
of Volkswagen inside Germany.

It was the site of the first factory of the company. The factory itself is enormous. It's the size of Monaco, effectively. If Volkswagen ceased to exist in Wolfsburg, the city of Wolfsburg would also cease to exist.

And in Germany, at this point in time, there's not as many stable jobs as there used to be. And like a VW worker or assembly line worker was a well-paid, blue-collar, middle-class kind of job. If you lose that, you don't get something easily.

So your livelihood, all of a sudden collapses. Dietmar Tuitje began his career at Volkswagen as an apprentice mechanic three decades ago. He works here, about 200 miles from Wolfsburg at VW’s Emden plant.

His lengthy tenure, like many, fostered great loyalty to his employer, but now also trepidation. It scares me and what's much worse, it scares my family that Volkswagen is questioning our work, our plants. Today, I talked to my employees

and colleagues at the VW plant, everyone sees their existence very, very, very threatened. Not only do they see their existence threatened, but also the livelihoods of their children, who, if everything goes well in the ideal case,

would have been or could have had an adequate employer at Volkswagen. Volkswagen's turnaround efforts right now are being led by Oliver Blume, who is the chief executive officer of the whole group. And who's leading the charge to downsize.

Which is a very controversial decision
because you're picking a fight with the employees,
who have a ton of power. So there's like 140,000
German employees at the VW brand, who obviously have political power,
which in turn

influences Lower Saxony, the state
which has a blocking minority. In accordance with historical laws
particular to VW. Regional government has voting powers
in the company's corporate decisions, often allying with the workers'
groups and at odds with investors.

The state of Lower Saxony has two seats
on Volkswagen's supervisory board. They, along with the ten seats
that sit on the supervisory board from the labor side,
that means they have a majority. And that means it's in their interest
to protect the locations

within Lower Saxony from being closed. This tension fueled protests
and heated negotiations between management and unions. There's lots of competing power players. That structure that makes Volkswagen
very slow-moving. This has also hindered
the ability of Volkswagen to make cuts

to its operational costs
that come from the labor side, because those are often
not seen as being in the interests of the hundreds of thousands of workers
that are employed at the company. One potential component of a restructured
VW is giving a new life to its plants.

There is precedent for a factory
to be sold off to another carmaker or to another company
so that those jobs remain saved. But there would be a difficult irony for
Germany to reconcile if that manifests. The likely buyer of any Volkswagen plant

is probably going
to be a Chinese manufacturer. Blume has characterized his company's crisis as “truly demanding”
but the restructure is progressing. On calls with investors, he said, “highly competitive” new products
are coming in 2025,

while partnerships with EV companies in
China are advancing well too. But then there's the US,
where VW is facing another problem because it exports more vehicles
there than anywhere else in the world. You know how many cars we have? Mercedes Benz and BMW and all of the Volkswagen.

Millions and millions of cars. We're going to put tariffs on them. It's a real risk that Volkswagen as we know it today doesn't exist
in the same way in five to 10 years. Germany and the German government,
the German system,

the company itself will do everything
to prevent that. But, the transition is going away
from Germany's traditional strength.

Has Volkswagen Lost Its Way?

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Volkswagen's Crisis: A Symbol of German Industrial Decline

Volkswagen, a symbol of German engineering, faces its most serious crisis.

The company's market cap has plummeted, reaching lows unseen since the financial crisis and emissions scandal.

Management seeks €17 billion in cost savings, potentially involving factory closures in Germany for the first time.

This decision pits Volkswagen against its workforce and local governments.

Volkswagen's impact extends globally, employing 680,000 people and impacting millions more through related industries.

The 2015 diesel scandal and the subsequent shift to electric vehicles (EVs) exposed the company's unpreparedness.

VW's attempt to create a vertically integrated supply chain, including battery production and in-house software, has proven challenging.

Tesla's success in integrating batteries, vehicles, and software highlights VW's shortcomings in the EV market.

Slumping EV registrations in Germany reflect VW's failure to produce competitive and affordable electric vehicles.

VW's struggles are emblematic of Germany's broader industrial challenges.

External Pressures: China and Macroeconomic Headwinds

China's economic slowdown and the rise of competitive Chinese EV manufacturers have impacted VW's market share.

Local Chinese manufacturers have gained significant market share, while German brands, including VW, have declined.

VW's past success in China may have led to complacency and underestimation of the competitive threat.

The European Commission's tariffs on Chinese vehicles offer some countermeasures, but VW also faces internal workforce challenges.

Internal Challenges: Workforce and Restructuring

Volkswagen considers factory closures in Germany for the first time, impacting its workforce and local communities.

The potential closure of factories in Wolfsburg, a city intrinsically linked to VW, would have devastating consequences.

Job losses at VW would significantly impact the German workforce and economy, as these were previously stable, well-paid jobs.

Employee testimonies highlight the fear and uncertainty surrounding potential job losses and the impact on their families.

CEO Oliver Blume leads the restructuring efforts, which involves controversial downsizing decisions.

Political and Structural Obstacles to Restructuring

The powerful VW workforce in Germany, with political influence, hinders cost-cutting measures.

Lower Saxony's regional government, with voting power on the supervisory board, often aligns with workers' interests, creating conflict with investors.

This power dynamic protects Lower Saxony's VW plants from closure, slowing down restructuring.

Competing interests and slow decision-making processes hamper VW's ability to implement necessary changes.

Potential plant sales to other carmakers, possibly Chinese manufacturers, present a complex scenario for Germany.

VW's restructuring is underway, with new products planned for 2025 and partnerships in China progressing.

However, US tariffs pose a significant threat to VW's exports.

There's a real risk that Volkswagen, as it exists today, may not survive in its current form in the next 5-10 years.

Germany faces a transition away from its traditional industrial strengths.