VW slows down EV production and wants to reduce costs

This week, Volkswagen has canceled one shift on the line producing the VW ID.3 and Cupra Born at its plant in Zwickau, Germany, due to low demand. The same may happen at the second production line if the market does not change.

Meanwhile, VW boss Thomas Schäfer is brooding on a cost reduction plan for the so-called non-productive jobs. “In many ways, we are not competitive enough,” he told the German business newspaper Handelsblatt. “We are too slow, too sluggish, too complex. We can’t survive if we continue like this.”

Zwickau

VW Sachsen produces electric cars on two lines in Zwickau: Line 1 for the ID.3 compact models and the Cupra Born, while the ID.4, ID.5, Audi Q4 e-tron, and Q4 Sportback e-tron SUV models (and SUV coupés) roll off the production line on Line 2.

Said Line 2 is currently at a complete standstill because there is a supply bottleneck for the new APP550 electric motor, probably until the beginning of December.

Line 1, which was already halted for two weeks during the autumn holidays in Saxony in October due to a lack of demand, is now canceling the night shift – meaning that the ID.3 and Cupra Born will only be built during the early and late shifts.

A work agreement change foreshadowed this step concluded around 30 years ago. At the end of September, VW canceled the guarantee of a three-shift operation, thus creating the possibility of switching to two shifts per day.

Depending on the market situation, the second production line at the site “could also be converted to a classic two-shift operation with early and late shifts next year”, a spokesperson for the site told Handelsblatt.

No overflow capacity needed

The bad news for Zwickau continues. In addition to the break in October and the lack of motors for the SUV models, Volkswagen already announced in September that the temporary contracts of almost 270 employees at the plant would not be extended.

Zwickau can produce up to 350 000 cars annually in a three-shift operation. In 2022, only 218 000 vehicles were built, according to Handelsblatt. VW expects to make 230 000 electric cars in Zwickau this year. The measure currently only affects the plant in Saxony.

However, there is already a second European production facility for the ID.4 in Emden. Overflow ID.3 production is due to start this year at the main plant in Wolfsburg (with parts supplied from Zwickau).

Premium daughter Audi scheduled further Q4 e-tron production at its Belgian plant in Brussels, but this has been postponed. If not even the first plant in Saxony is working at total capacity and is canceling a shift, there is really no need for second sites with even lower capacity utilization.

Problems accumulate

Volkswagen seems to be facing several problems at the same time. Sales in China are diminishing due to fierce competition, digitalization has been fairly disastrous (despite or because of Cariad), and the sales of EVs in the rest of the world are also below expectations.

At the moment, VW isn’t very keen in going into the price battle Tesla has initiated because that will affect profit margins even more. According to CEO Thomas Schäfer, the operating profit margin has to double, from 3,4 to at least 6,5%, to cope with the investments that have to be made in new (electric) models and technologies.

Performance Program

As a reaction, Schäfer has drawn his new ‘Performance Program’. In the next three years, Schäfer wants to shrink structural costs by € 10 billion. The tools to achieve this are faster development, the implementation of the agency model for distribution, and the renegotiation of supplier contracts.

The most important cut in personnel will be at the office level. The salary cost of office personnel has to decrease by 20%. That involves the loss of 4 000 to 8 000 jobs.

On Friday, the 17th of November, there is a board meeting of the VW Group, where the production for the next five years will be allocated to the different plants within the group. VW says that “production volumes at the moment are insufficient to keep all plants running at maximum capacity.”

According to the solidarity principle inside the group between all brands and plants, the production will be limited to 80% of the maximum capacity in all factories. If the Performance Program doesn’t have results fairly quickly, the closing of plants becomes a possibility. “There’s no longer a no-go on the subject,” said a high-ranking manager to Handelsblatt. However, concrete plans don’t exist yet.

Audi Brussels

Postponing the introduction of a second model (the Audi Q4 e-tron)  in the Brussels Audi plant has caused some agitation on the work floor. Employees have been striking for a few days and in the end, the Brussels plant direction guaranteed job certainty for 2023 and 2024.

The further future will depend on the popularity of the  (recently facelifted) Q8 e-tron produced in Brussels and if this success will last until 2026, when its successor appears on the scene.