Volkswagen China Responds to Layoff Rumors: Optimizing Costs and Enhancing Efficiency Across Departments and Projects
In the face of a fiercely competitive market, Volkswagen China has confirmed that it is embarking on a journey to optimize costs and enhance efficiency. This comes after reports surfaced on September 23, suggesting that the company was planning a phased layoff of hundreds of local employees at the group level. In response to inquiries from Peng Pai News, Volkswagen China clarified that the Volkswagen Group has initiated a performance program across all its brands in 2023, aiming to maintain success amidst the industry’s challenges.
The group has set a clear target of increasing efficiency by 20% by 2026. Volkswagen Group China, like all other departments, is actively participating in and supporting the global performance program. This includes restructuring the organization, enhancing digitalization of work processes, strengthening synergy between brands and departments in the Chinese market, and increasing the localization of projects.
Volkswagen has stated that in this context, the company is continuously improving the efficiency of departments and projects and optimizing costs. Depending on the circumstances, these measures also involve direct personnel costs, including administrative expenses, travel expenses, and training costs.
In the backdrop of the electrification transition, Volkswagen, a traditional fossil fuel vehicle giant, is facing significant challenges. Foreign media reports suggest that Volkswagen is planning to cut 30,000 jobs in Germany to enhance competitiveness in the European car market. The most affected will be the research and development department, with up to 6,000 job cuts expected among 13,000 R&D personnel.
Previously, Volkswagen had made a historic decision to consider closing two domestic factories in Germany. On September 2, Volkswagen announced that it was considering closing a car factory and a parts factory in Germany to cut costs. This would mark the first time in Volkswagen’s history that a factory in Germany would be closed, signifying a departure from the company’s commitment not to lay off employees before 2029.
Volkswagen’s latest financial report shows that in the second quarter of 2024, revenue was €83.34 billion, a year-on-year increase of 4.1%; operating profit was €5.46 billion, a year-on-year decrease of 2.4%; and global sales reached 2.244 million units, a year-on-year decline of 3.8%.
In its financial report, Volkswagen stated that sales performance growth in North America and South America almost offset the impact of declines in other regions, with a particularly significant drop in the Chinese market.
In the Chinese market, Volkswagen has lost its dominant position. In the first half of this year, Volkswagen’s sales in the Chinese market were 1.345 million units, a year-on-year decrease of 7.4%, attributed to fierce competition in the Chinese market. From a market share perspective, China accounted for 30.9% of global total sales, significantly lower than its peak when China contributed 40% of Volkswagen’s global market share.
Moreover, Volkswagen has lost its long-standing dominance in China’s automotive market. BYD sold over 1.6 million vehicles in the first half of the year, surpassing Volkswagen to become the sales leader. Based on full-year expectations, this trend is unlikely to change.
Volkswagen’s misfortune in the Chinese market is partly due to its slow electrification transition. However, it is noteworthy that Volkswagen is considered the fastest transformer among joint venture car companies. The sales of its ID series have been on a steady upward trend over the past two years. Still, Chinese auto brands have a significant first-mover advantage in the field of smart electric vehicles.
Now, the Volkswagen Group is attempting to address its shortcomings through increased local cooperation. Last year, Volkswagen Group officially announced that it would fully participate in the booming development of China’s electric vehicle market through cooperation between Volkswagen brand and Xiaopeng Motors, and Audi brand with SAIC Group.
Among the collaborations, Volkswagen brand and Xiaopeng Motors reached a technical framework agreement to jointly develop two electric models under the Volkswagen brand, planned for market entry in 2026. Volkswagen Group acquired approximately 4.99% of Xiaopeng Motors’ equity. Audi, on the other hand, is jointly developing a portfolio of high-end market intelligent connected electric vehicle products with its Chinese joint venture partner SAIC Group. As the first step in this plan, Audi will introduce new electric models to previously untapped segments of the Chinese market.
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