Volkswagen

Company Update:
According to reports, Volkswagen aims to cut up to 100,000 jobs worldwide and reduce investment by around 15% to just over €130 billion over the next few years. The group’s fixed cost base is too high.

According to the newspaper Manager Magazin, the group’s core VW brand and parts-manufacturing plants could be spun off from the current structure and incorporated into separate entities.

The magazine also reported that CEO Oliver Blume aims to close factories in Hanover, Zwickau, and Emden, as well as an Audi plant in Neckarsulm. Production would be discontinued once the models currently manufactured at those German sites are phased out.

We find this extremely unlikely given the influence of the Lower Saxony regional government and the labour union IG Metall on the supervisory board, as well as the fact that Blume had previously guaranteed no plant closures this decade.

Overall, this reinforces our view that European OEMs need a fundamental restructuring of their manufacturing base and operating model to adapt to the new paradigm, moving away from the export-focused playbook that for decades relied on engineering and manufacturing vehicles domestically while generating outsized profits in China.

This shift is driven by loss of market share in China, global pricing pressure, and tariffs. For Porsche AG, its two largest markets have changed fundamentally, with tariffs weighing on US performance and deliveries in China falling by roughly half to around 40k units over the past three years.

Expert Opinion:
If confirmed, this restructuring would be excellent news. Not only on the cost side, but more importantly on the perception that the group can manage its cost base in Germany. Yet, we remain skeptical that the group can really do so, notably because of the power of German unions and the commitment of Oliver Blume. In any case, this kind of rumors/reports only highlight the very difficult situation Western carmakers are in. Competition form China is intensifying (Arguably better products and an increasing need to massively export to offset a slowdown on the Chinese market)  while the European regulation remains adverse for European car manufacturers by imposing very drastic changes on a pace that is unsustainable. Meaning that the only way out for carmakers will be to downsize their production capacity in line with their loss in market shares. Until now, VOW was seen as being unable to do so.

If that perception changes, VOW becomes potentially investable again. But it is still too early in our opinion to take such a risk. 


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