Volkswagen cuts workforce in China, operating profits down 20% in 2023

Volkswagen is cutting hundreds of jobs in China as part of a global cost-reduction strategy, aiming to reduce overheads by 20% over the next three years. The move comes as the company faces a sharp decline in sales in its largest market and a growing shift toward electric vehicles (EVs).

“We are optimising costs, which may include personnel expenses,” a Volkswagen Group China spokesperson said in an email. The company added that the reduction will affect both direct and indirect costs, including administrative and travel expenses. However, it declined to provide specific numbers, citing an ongoing review.

China’s consumer market has weakened, leading to a 7.4% drop in Volkswagen’s deliveries in the first half of the year. This is compounded by fierce competition from local EV manufacturers like BYD. Volkswagen’s sales in China last year were down 24% from 2019 levels.

Volkswagen’s premium Audi brand, with over 700 employees, is also trimming its workforce in China. “Audi will be significantly affected by this efficiency drive,” according to sources familiar with the matter. The job cuts are part of a broader effort by the German automaker to reorganize its operations globally.

Shift in Strategy

Volkswagen’s CEO, Oliver Blume, stated that the automotive industry has become “even tougher” with new players entering the market. The company is now considering factory closures in Germany for the first time, as it works to streamline operations.

Ralf Brandstaetter, head of Volkswagen China, is leading the local restructuring efforts, which include digitizing processes and localizing some tasks. Some expatriate staff are being sent back to Germany, while mid-level managers are being dismissed.

“China is a key market, and we will continue to make significant contributions here,” Volkswagen said, adding that the overhaul is crucial to maintaining competitiveness.

Impact on Earnings

Volkswagen’s share of operating profits from its Chinese ventures dropped 20% in 2023, amounting to €2.62 billion (R50.8 billion). This marks a nearly 50% decline since 2015, reflecting the impact of reduced demand for combustion-engine vehicles and the rising dominance of EVs.

Meanwhile, other foreign luxury brands are also feeling the pinch. Mercedes-Benz recently issued a profit warning, citing the slowdown in Chinese auto sales.

As the market shifts, Volkswagen and its joint venture partner, SAIC Motor, are preparing to close at least one plant in China. This underscores the challenges the company faces as it navigates the transition to electric vehicles in a rapidly evolving market.

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