Has Volkswagen turn into too reliant on international markets? – DW – 01/15/2025 | EUROtoday

Volkswagen (VW) could seem uniquely German with its Beetle, Golf, Polo and Bus fashions, however the carmaker has an enormous world footprint and relies on many different international locations to maintain the meeting strains operating.

Recently, a altering auto market, particularly in the case of electrical autos, and attainable miscalculations by administration have began to derail its success.

Home-grown and world issues

New car demand is down in Europe and should by no means attain pre-pandemic ranges that when noticed 17 million autos bought a yr. Demand for VWs, specifically, is within the crosshairs, particularly as Chinese rivals take over the worldwide marketplace for electrical autos.

Last yr, the VW model, the most important model within the 12-brand Volkswagen Group, bought 4.80 million passenger vehicles worldwide, 1.4% lower than in 2023, harm by decrease gross sales in key market China. Operating revenue plummeted almost 37% to €1.34 billion within the first three quarters of 2024 from €2.12 billion in the identical interval in 2023 due to greater fastened prices and restructuring, based on an organization press launch.

At residence in Germany, VW is in turmoil. The firm has introduced drastic cuts. Surging power costs since Russian fuel was turned off over the Ukraine struggle, Chinese competitors, the price of German employees and looming tariffs amid Donald Trump’s return to the White House are making enterprise as traditional troublesome.

The firm stated on December 20 it had reached an settlement with labor unions that 35,000 jobs might be reduce, with the remaining VW workforce in Germany having to forego wage will increase and bonuses within the coming years.

Could Germany’s ache be a blessing for different international locations that assemble Volkswagens?

Volkswagen in Europe and past

VW has 76,000 workers in Germany and an additional 63,000 worldwide.

Whether to be nearer to prospects or cheaper labor, the corporate has an intensive manufacturing community that stretches globally. Besides Germany, it at present has manufacturing services in Poland, Spain, Portugal and Slovakia.

All services in Russia, together with a giant plant, have been closed and imports have been stopped in 2022 after the invasion of Ukraine. A yr later, VW bought all its property within the nation, a transfer different European carmakers additionally made. A proposed manufacturing unit in Turkey failed to maneuver ahead because of the COVID-19 pandemic.

Further afield, VW assembles autos in Argentina, Brazil, Mexico, the United States, China, India and South Africa. Outside of Europe, by far VW’s largest funding is in China, adopted by a distant Mexico and Brazil.

Volkswagen’s lengthy Brazilian historical past

VW’s first plant exterior of Germany was opened seven many years in the past in far-away Brazil. Today, Volkswagen do Brasil is the biggest producer within the nation, based on the corporate. Last yr, it produced its 25 millionth car.

Although South America solely accounted for 8% of gross sales in 2023, the corporate is at present closely depending on Brazil. VW has an excellent status there and makes up a giant a part of the autos on Brazilian roads, and gross sales are up.

This excellent news has purchased the corporate a while. However, the market is simply too small to compensate for losses elsewhere, and the competitors just isn’t far behind.

Doing enterprise with the US by way of Mexico

In 2023, North America made up simply over 10% of VW gross sales, however it’s a crucial market — one that’s about to turn into harder if US tariffs are imposed on autos made elsewhere.

Volkswagen has a plant in Tennessee. Counting on cheaper labor and free commerce inside North America, VW additionally has a giant facility in Mexico. Yet this plan may very well be thrown into the shredder and be hit by robust US tariffs.

President-elect Donald Trump has his eyes fastened on Germany and German firms. During his presidential marketing campaign, he stated: “I want German car companies to become American car companies. I want them to build their plants here.”

Added all collectively German carmakers produce many autos inside America. Many are for the home market, whereas others are exported. Still, Volkswagen relies on European imports to cowl the demand within the United States totally. Tariffs may very well be one other hit to gross sales and the corporate’s backside line.

China, a particular and problematic case for VW

For years, Volkswagen had excessive hopes for enterprise in and with China. For the previous decade, the corporate has relied on the nation for giant gross sales development and its manufacturing capabilities. Both at the moment are below fireplace, and people desires are rapidly coming to an finish.

In 2019, VW was the most important automobile firm in China and had a market share of 19% of the Chinese market, which is the most important on the planet. For VW, China was the corporate’s largest and most profitable market, accounting for a 3rd of the carmaker’s whole gross sales and a giant a part of its earnings.

Today, VW has a Chinese market share of 14%, a determine that’s falling. Domestic Chinese rivals are within the quick lane and taking gross sales. They are particularly good at making low-cost electrical autos that prospects like, so low-cost that Canada, the US and EU not too long ago hit Chinese EVs with further tariffs. Nonetheless, China is now the world’s largest exporter of vehicles and fewer dependent than ever on international fashions.

For all its lengthy historical past and world footprint, Volkswagen just isn’t proof against downturns. To make this subsequent huge curve, the corporate might want to refocus whereas being attentive to punitive tariffs, its completely different and numerous markets and the Chinese competitors rushing towards it at warp velocity.

Edited by: Uwe Hessler