As an independent specialist in VW Group cars, we want all their marques to be doing well.
They aren’t just our business, they’re makers of some of the most iconic and beloved cars in motoring history, and their current line-up includes some great (and award-winning) vehicles.
So it gives us no pleasure to report that VW is facing some tough times.
Back in September, VW announced that it was considering shuttering some of its German plants. By the end of 2024, the management struck a deal to avoid closures, but even the discussion caused shockwaves throughout Germany. With an 87-year history, VW is at the heart of German manufacturing and it had never suggested anything similar before.
As Volkswagen Group CEO Oliver Blume put it:
“The European automotive industry is in a very demanding and serious situation.”
So what lies behind this gloomy picture, and are there any prospects for improvement?
The EV pivot and China
Despite what some news sources would have you believe, electric vehicle sales continue to rise in virtually every market. Sales in 2024 increased globally by about 20% compared to 2023. In the UK, they were up by just over that. For a number of years, VW Group has been leaning hard into that transition, trying to get the jump on its competitors. And to get short-term success with this policy, it needs to do well in China. Why? Because China is not only the largest car market in the world, but by far the largest global EV market. Last year, 11 million electric passenger cars were sold there – almost 50% of the World’s total.
Unfortunately for VW, it’s in China that its EV line-up is facing the greatest competition.
Caught between IG Metall and Chinese cheapness
The problem is that VW can’t compete with some of China’s home-grown products. As we reported last time, Western manufacturers don’t have the same lead over Chinese brands that they once did. What’s more, Western marques are usually considerably more expensive. If you’re a Chinese consumer, why would you pay through the nose for a VW Group EV (or any other Western brand), when you could get something just as good from BYD for much less?
There are various reasons why Chinese brands are so cheap, ranging from the country’s dominance in the battery market to cheaper labour, not to mention government subsidies.
The obvious fix for VW is to lower its production costs. As CNN reported:
“Our main area of action is cost cutting,” Blume told analysts on an earnings call last month, citing planned reductions to factory, supply chain and labor expenses. “We have done all the organizational steps needed. And now it is about costs, costs and costs,” he added.
Yet that is easier said than done when you’re up against the mighty IG Metall, one of Germany’s most powerful unions. Naturally, IG Metall wants to protect its members’ interests and to safeguard their futures. The deal that it brokered last year managed to avoid the factory closures, but there will still be cuts of 35,000 jobs in Germany – mainly to be achieved through ‘socially responsible mechanisms’ such as early retirements.
The point is that it’s tough for VW to navigate these choppy waters, because it’s not only a profit-making business – it’s also a huge and iconic employer. This all adds up to a real puzzle for our favourite carmaker.
Relief from the Anti-Tesla Effect?
Having said that, VW might have just got a helping hand from an unlikely quarter. Right now, controversial CEO Elon Musk is about as popular in Germany as rabies, and Tesla sales have plummeted. We speculated last month that VW Group could be a beneficiary. Right on cue, Clean Technica’s EV sales expert Maximilian Holland has just reported Germany’s sales figures for March:
The Volkswagen ID.7 was again – for the third consecutive month – the best selling BEV in Germany, with its highest volume yet, 3,225 units.
In second place was the Volkswagen ID.4 / ID.5, with 2,593 units. The Skoda Enyaq took third spot, with 2,392 units, displacing the Volkswagen ID.3 (now 4th). Another VW Group model was in 5th, the Cupra Born.
Whether this is really anti-Tesla sentiment, rallying round the flag, or some other factor is anyone’s guess. Whatever the reason, it’s at least one ray of sunshine for beleaguered VW executives.
And then came Trump’s tariffs…
Whatever benefits Volkswagen might reap from Tesla’s dropping popularity is likely to be cancelled out, and then some, by President Trump’s tariffs.
It’s difficult to put any numbers on this because the situation, as they say, is evolving. We’re writing this on April 15th, when the tariffs imposed on any vehicles made outside of the US would appear to be 25%.
As far as we can verify, this doesn’t stack on top of the 20% blanket tariff imposed on all goods imported from the EU goods. However, by the time this is published, who knows? So far, President Trump’s record on tariffs has been pretty erratic, with delays, threats, sudden reversals and so on.
What we can say, though, is that VW is probably going to be facing some sort of hefty tariff. Trump has been in favour of tariffs for a long time, and isn’t likely to give up the idea anytime soon.
This will matter to VW, because North America is their second biggest market, accounting for about 20% of their sales (67 billion euros). Volkswagen has started adding notices to its US cars spelling out how much the import tax is adding to its sticker price, but it seems like a bit of a futile gesture.
Fingers crossed for a great manufacturer
We’ve said it before, and we’ll say it again: VW continue to make some fabulous cars. Decades of engineering excellence don’t disappear overnight and we think there has to be a market for the German titan’s products. As always, it’s watch this space. In the meantime, we’ll continue to offer a independent specialist service for VW, Audi, Skoda and SEAT/Cupra owners in Cardiff and South Wales, offering MOTs, servicing and repairs. Hope to see you soon!
The WVS blog covers all sorts of motoring issues, from light hearted to contentious. If you’re in South Wales, and you need your car serviced, repaired or MOTed, we’ll be here to give you a main dealer level of care at affordable prices. To book your vehicle in, or for any enquiries, get in touch. We specialise in VW Group marques like Volkswagen, Skoda, SEAT and Audi, but we’ve got shedloads of experience with other cars too.