‘The roof is on fire – Volkswagen in crisis as switch to e-cars destroys profitability

By Dénes Albert
3 Min Read

German automaker Volkswagen (VW) is entering crisis mode, and even the executives are admitting it, with the company’s leader describing a “perfect storm.”

During a meeting with 2,200 company executives, Thomas Schäfer, a board member for the core VW brand, said the company is “under enormous pressure from internal and external factors” and warned that the “roof is on fire.”

Now, the company leader has told his top executives that “the future of the VW brand is at stake.”

Schafter noted that the company is only producing a 3.6 percent profit margin, half that of VW’s competitors, at a time when demand is rapidly collapsing. Shareholders have already long expressed skepticism over the company’s electric car transition, with the shares of the company being cut in half since 2021, falling to €123.

Due to falling demand, the group slashed production at its Emden plant, where electric cars are made, extended plant vacations by a week, and laid off hundreds of temporary workers.

“The next weeks and months will be very tough,” Schäfer warned, according to a report from Tagesschau. The business environment, he said, is a “perfect storm.”

The VW executive stated that costs are running too high in many areas and that structures and processes are “still too complicated, too slow, too inflexible.”

At the top of the list of challenges facing the company is the lack of demand for electric cars despite the company investing huge sums in the division. High inflation, Germany’s recession, and e-car sticker shock for consumers have contributed to a sharp reduction in demand. At the same time, popular e-car subsidy programs, such as Germany’s “environmental bonus,” have been phased out, which has added to the cost of e-cars for consumers.

For VW, the future of its electric car division is now coming into question. The cost of rechargeable batteries has once again risen sharply while low production values raises the cost of producing each e-car. Tesla and Chinese automaker BYD continue to put pressure on VW as well, including with price cuts.

The situation is also calling into question rosy predictions that electric cars would be the future of VW, while growing inventories have led to a glut of cars and few buyers. Schafer says, however, that he wants to turn the ship around and increase profit margins to 6.5 percent by 2026.

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