Sluggish EV market puts Volkswagen’s Gigafactory on ice

Volkswagen is pulling the brakes on its expansion strategy for Gigafactories in Europe. The German carmaker was to decide upon a forthcoming cell factory in the East European region. Still, group CEO Oliver Blume stopped the process, citing the slow EV market as one of the main reasons.

Currently, Volkswagen is constructing battery factories at three sites worldwide through its subsidiary PowerCo: Valencia in Spain, Salzgitter in Germany, and St-Thomas in Canada. For its fourth factory, the group investigated locations in Hungary, Poland, Slovakia, and the Czech Republic.

‘No business rationale’

With the Czech Republic as a plausible candidate, the news on the delay was published by Volkswagen’s daughter brand, Skoda. “Based on market conditions, including the sluggish ramp up of the BEV market in Europe, there is, for the time being, no business rationale for deciding on further sites,” Blume was cited.

The negotiating partners from the Czech Republic, which met with Blume earlier this week, reacted that they would offer their location and incentives to other investors, as there was no time left for them to postpone the decision.

When the group launched its strategic plans at Power Day two years ago, the objective was six Gigafactories by the decade’s end. Blume did not reveal whether those aims have changed, as the company is continuously forced to review its electrification strategy under pressure from market conditions.

Cost-cutting strategy

The underwhelming uptake of battery-powered models on the private market and the slowdown in government incentives are causing a continuous shift at Volkswagen. A staff reduction has been greenlighted in its most important EV plant in Zwickau; the Audi Q4 e-tron has been put on hold in the Brussels factory, while production at the famous Glass Factory, where the ID.3 is built, will be halted.

Volkswagen chooses a cost-cutting strategy instead of stepping into a price war with competitors but maintains its overall output forecast for this year, set between 9 million and 9,5 million vehicles. EV orders have increased slightly during the third quarter, and an increase for the final quarter is expected. Nonetheless, EV demand for the car group is only half as strong in 2023 as last year.

The revision of plans for battery and electric car production isn’t affecting Wolfsburg alone. Last month, Elon Musk announced that he was slowing down on the construction plans of its new factory in Mexico, citing the high-interest rates as a hurdle for vehicle registrations, evoking caution.

Ford also cut one shift at the production line of its all-electric F-150 Lightning. The overall market for BEVs keeps growing globally, but there’s currently a substantial mismatch between sales and carmaker’s expectations.