On October 30, Volkswagen, the largest car manufacturer in Europe, announced a sharp decline in its profits to a three-year low due to weak demand in the Chinese market. The company plans to close three factories and lay off tens of thousands of employees.
According to Volkswagen’s report, the company’s net profit dropped from 4.34 billion euros in the same period last year to 1.57 billion euros in the first three quarters of this year, a 64% decrease. Revenue also fell by 0.5% to 78.5 billion euros. The operating profit margin for the quarter dropped to 3.6%, with the flagship Volkswagen brand’s profit margin further decreasing to 2%.
CFO Arno Antlitz stated in a press release, “The market environment is full of challenges,” highlighting the urgent need for significant cost reductions and increased efficiency, with the company considering cost cuts exceeding 10 billion euros (approximately 10.8 billion US dollars).
Facing intense competition from domestic brands, Volkswagen Group’s car sales in China fell by 12% in the first nine months of this year, exacerbated by the overall economic slowdown resulting from the real estate crisis.
Volkswagen’s car deliveries in China in the third quarter decreased by 15% to 711,500 vehicles, dragging down the global delivery total to 2.176 million vehicles. Dividends for the year 2024 are also expected to decrease.
Sales in Western Europe also dropped by 1%. The company expects an operating profit of approximately 18 billion euros for the full year, with a profit margin of around 5.6%.
Since the pandemic, the European car market has shrunk by about 2 million vehicles, leading to Volkswagen losing approximately 500,000 vehicle sales per year. Tesla and Chinese automakers’ budget models have gained market share in Europe.
Antlitz added, “We support free and open markets. If you look at our Chinese competitors, they have already started building factories in Europe. We have not forgotten how to make excellent cars, but our production costs are far from competitive.”
Volkswagen has issued two profit warnings this year due to a sharp drop in electric car sales in Germany following the government’s sudden reduction of car subsidies at the end of last year.
Volkswagen’s issues have raised concerns about Germany’s status as an industrial powerhouse and the competitiveness of European car manufacturers as global rivals are closing in.
German car manufacturers are also concerned about the impact of the deadlock between the EU and China. The EU’s plan to impose high tariffs on Chinese electric cars will come into effect this week, with tariffs as high as 45.3%.
Antlitz stated that Volkswagen has a revival plan for the Chinese market, including improving software and driver assistance, with expectations to regain market share by 2026 or 2027.
Volkswagen’s stock price has dropped by approximately 20% so far this year, underperforming the pan-European automotive index’s 10% decline.
Volkswagen announced its financial performance to the unions a few hours before salary negotiations, revealing plans to close three factories, lay off tens of thousands of employees, and implement a 10% pay cut for remaining workers. This will be the first time in Volkswagen’s 87-year history that three domestic factories are being shut down.
The unions have accused management of making erroneous decisions and threatened strikes unless the plan to close factories in Germany is abandoned. The unions are demanding a 7% salary increase for employees.
The German government has been pushing for a solution to keep Volkswagen’s factories open. However, a government spokesperson stated on Wednesday that it is too early to decide whether the government will provide national assistance.
Volkswagen is not the only automaker experiencing a downturn in car sales in China. Several international and Chinese automakers have faced setbacks in China due to the weak economy.
American automotive giant General Motors (GM) recently released its third-quarter earnings, which outperformed Wall Street’s expectations overall, but the Chinese market performance was not ideal. Sales of the joint venture SAIC-GM plummeted by nearly 80% to just 22,000 vehicles per month. The company has incurred losses of $348 million in the first three quarters of this year in the Chinese market.
In the first three quarters, German luxury car brand Porsche saw a nearly 30% decrease in sales in China compared to the same period last year. There are reports that the promotional price for the 2024 Macan 2.0T base model has been discounted by 40%, attracting attention.
On October 10, SAIC Group, which had been the top-selling car company in China for over a decade, announced that its vehicle sales in September this year were 313,300 units, a 35.03% decrease compared to the same period last year. The total sales volume reached 2.6493 million units, down by 21.56% year-on-year.
(This article references reports from Reuters and Financial Times)