Volkswagen (VW) may seem distinctly German with its Beetle, Golf, Polo and Bus models, but the carmaker has a huge global presence and relies on many other countries to keep assembly lines running.
But the changing auto market – especially when it comes to electric vehicles – and potential miscalculations by management have begun to derail its success.
domestic and global problems
New vehicle demand in Europe has slumped and may never reach pre-pandemic levels, where 17 million vehicles were sold a year. Demand for VW, in particular, is in the crosshairs, especially as Chinese rivals take over the global market for electric vehicles.
Last year, the VW brand – the biggest brand in the 12-brand Volkswagen Group – sold 4.80 million passenger cars worldwide, down 1.4% from 2023, hit by lower sales in key market China. According to the company’s press release, operating profit fell by almost 37% to €1.34 billion in the first three quarters of 2024 due to higher fixed costs and restructuring, from €2.12 billion in the same period of 2023.
At home in Germany, VW is in turmoil. The company has announced huge cuts. Rising energy prices, Chinese competition, German labor costs and rising tariffs following the Russian gas shutdown are making business as tough as ever.
The company said on December 20 that it had reached an agreement with labor unions that 35,000 jobs would be cut, with the remaining VW workforce in Germany having to give up pay increases and bonuses in the coming years.
Could Germany’s pain be a boon for other countries that assemble Volkswagen?
Volkswagen in Europe and beyond
VW has 76,000 employees in Germany and 63,000 worldwide.
Be it proximity to customers or cheap labour, the company has a large production network spread across the globe. In addition to Germany, it currently has production facilities in Poland, Spain, Portugal and Slovakia.
Following the attack on Ukraine, all facilities in Russia, including a large plant, were closed in 2022 and imports were halted. A year later, VW sold all of its assets in the country, a move followed by other European carmakers. A proposed factory in Türkiye failed to proceed due to the COVID-19 pandemic.
Further afield, VW assembles vehicles in Argentina, Brazil, Mexico, the United States, China, India and South Africa. Outside Europe, VW’s biggest investment to date is in China, followed by distant Mexico and Brazil.
Volkswagen’s long Brazilian history
VW’s first plant outside Germany opened seven decades ago in remote Brazil. According to the company, today Volkswagen do Brasil is the country’s largest manufacturer. Last year it produced its 25 millionth vehicle.
And although South America sales are only 8% in 2023, the company is heavily dependent on Brazil at the moment. VW has a good reputation there and has a large share of vehicles on Brazilian roads, and sales are growing.
This good news has brought relief to the company for some time. But the market is too small to make up for losses elsewhere and the competition is not far behind.
trade with us through mexico
In 2023, North America will account for just over 10% of VW’s sales, but it is a very important market. This will become more difficult if US tariffs are imposed on vehicles manufactured elsewhere.
Volkswagen has a plant in Tennessee. Relying on cheap labor and free trade within North America, VW also has a large facility in Mexico. Yet the plan could run into trouble and be hit by tough US tariffs.
Newly elected President Donald Trump has his eyes on Germany and German companies. While campaigning he said: “I want German car companies to become American car companies. I want them to build their plants here.”
All in all, German carmakers produce a lot of vehicles inside the US. Many are for the domestic market while others are exported. Nevertheless, Volkswagen is dependent on European imports to fully meet demand in the United States. The tariffs could have another impact on sales and company profits.
China, a special and problematic case for VW
For years, Volkswagen had high hopes for business in and with China. Over the past decade, the company has depended on the country for large sales growth and its manufacturing capabilities. Both are now on fire and those dreams are quickly coming to an end.
In 2019, VW was the largest car company in China and had a 19% share of the Chinese market, the largest in the world. For VW, China was the company’s largest and most lucrative market, accounting for a third of the carmaker’s total sales and a large share of its profits.
Today, VW’s Chinese market share is 14% and falling. Domestic Chinese rivals are moving fast and increasing sales. They are particularly good at making cheap electric vehicles that customers love, so cheap in fact that Canada, the US and the EU recently imposed additional tariffs on Chinese EVs. Nevertheless, China is now the world’s largest exporter of cars and is less dependent than ever on foreign models.
For all its long history and global footprint, Volkswagen is not immune to recession. Reaching this next big inflection point will require the company to refocus given the punitive tariffs, its various and diverse markets, and the Chinese competition that is increasingly heading its way.
Edited by: Uwe Hessler
