As European vehicle makers continue to face challenging global markets and increased costs, many are having to make difficult decisions around underutilised production operations. Ian Henry looks at how Chinese OEMs could potentially buy or utilise some of Volkswagen’s production sites.
Last year Volkswagen threatened to close three German factories and make thousands of workers redundant. Under pressure from the unions (and quite probably the government of the state of Lower Saxony behind the scenes), outright closures in Germany have come off the table, although the Audi factory in Brussels is still due to close by the end of February. Production will finish by the end of the year in the small Volkswagen plant in Dresden, which makes the ID3 – but Volkswagen is pursuing alternative uses for the factory. Also, Volkswagen has said that the former Karmann factory at Osnabruck which makes the T-Roc cabriolet will continue to do so until 2027. But then it will need to find other uses for the factory.
The large Zwickau plant will see production drop as it concentrates for now on just the Audi Q4 (in 2022, Zwickau made six EVs on two lines, but it will soon make just one model on one line). Meanwhile the Emden plant will make just the ID4 and ID7. Both 300,000 upa factories will soon be making no more than half that number; Wolfsburg will lose production of the Golf ICE model to Mexico but will gain the electric replacement for the Golf and the T-Roc too. Those names will, it would appear, be retained – future electric Volkswagens will not all be IDs.
“Selling German car plants to the Chinese will be, symbolically, highly significant and politically challenging for Germany as a whole and Volkswagen especially” – Ian Henry
European plants could help Chinese OEMs avoid high tariffs
With the future of the Brussels plant unknown, and the futures of the Dresden and Osnabruck factories uncertain, reports have emerged that various Chinese companies are looking at buying these factories. Chinese VMs need European factories quickly to avoid the EU’s punitive tariffs but even these may not get around all the tariffs. The 10% standard import tariff could be applied on CKD kits if that is what the Chinese VMs decide to do in Germany. Making a success of producing in Europe will require full manufacturing, not kit assembly.
Selling German car plants to the Chinese will be, symbolically, highly significant and politically challenging for Germany as a whole and Volkswagen especially. The Osnabruck unions have said that they have no objection to Chinese vehicles being made there, but they would have to be badged as Volkswagens and be produced to Volkswagen standards. The latter would likely be a market requirement, the former probably more of an issue.
Volkswagen will shortly have a full electric ID range, although the ID6 is not sold in Europe, all the other numbers with an ID designation from 1 to 7 are or will soon be on the road. Add to that cohort the future electric Golf, T-Roc and potentially Tiguan and it is not clear where another Volkswagen, even one based on a Chinese platform, would fit into the Volkswagen brand portfolio.
The unions ultimately may have to concede on this; Volkswagen’s Chinese partners – SAIC (which owns MG), FAW, JAC and Xpeng – want their own presence in Europe. However, the real question is whether they will do this by building their factories or taking over an existing Volkswagen plant. BYD has chosen to build two new factories of its own, in Hungary and Turkey, but Chery has decided to enter Europe by buying an old Nissan plant in Spain, although it may also build its own plant in future. Meanwhile, Leapmotor, which is partly owned by Stellantis, has set up a kit assembly operation at Stellantis’ factory in Poland and may add production at the Opel plant at Eisenach in Germany. The Opel unions appear more than willing to make a Chinese-branded vehicle. Will Volkswagen’s unions adopt the same point of view?
”Plant closures may have been avoided for now, but Volkswagen’s management has not given up on more substantive change” – Ian Henry
The Chinese VMs are coming to Europe, one way or another; the question is, will the likes of SAIC or Xpeng, or other Volkswagen partners, conclude that their interests are best served by buying an existing factory, and taking on some or all of the existing workforce and their terms, or will they – like BYD – choose to build their own factories, and if so, where might these be?
Meanwhile the German unions are going to face continued entreaties from Volkswagen management to cut costs. Arno Antlitz, Volkswagen’s finance chief, wants major improvements in productivity, boosting the number of cars made per worker. Plant closures may have been avoided for now, but Volkswagen’s management has not given up on more substantive change.
German production plants face an uncertain future
The jury is out on all of this, for now; but the Audi Brussels plant will shortly close, as there is no realistic sign of a Chinese buyer committing to purchase this site. The Brussels factory has a sub-optimal location, expensive labour costs and is far from ideal for manufacturing price-sensitive small or compact cars which the Chinese specialise in. Similar issues apply in Dresden and Osnabruck, so although Chinese VMs may be in theory be interested in these factories, it would not be a surprise to see the likes of SAIC and others opt for greenfield sites, in Turkey or parts of eastern Europe.
Volkswagen’s German factories have had their potential closures halted, but probably only for a limited time. Either they are taken over and reorganised as per the Chinese companies’ wishes, or they will ultimately close outright. Even then further cutbacks will be required to address Volkswagen’s deep financial problems. Things have changed at Volkswagen, but have they changed enough? And how much more change can we expect?
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