How Volkswagen Lost Its Way

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Europe's largest economy is facing one of its most symbolic chapters in its story of industrial decline, with Volkswagen at the center of the crisis. Volkswagen, a symbol of German engineering, is undergoing its most serious struggle in history. The fundamental foundation of the company is crumbling, along with tens of billions of euros in market value, which has dropped to levels not seen since the aftermath of the financial crisis and the emissions scandal. To stabilize the business, management must find €17 billion in cost savings, and they are radically overhauling their approach to achieve this.

Volkswagen is considering its first-ever factory closures in Germany in its 87-year history, pitting the company against its large workforce and the cities built around its plants. This situation has sparked an existential question about the role of cars in Germany's modern economic and industrial identity. Volkswagen employs 680,000 people globally, and millions of workers and industries depend on its business. Despite generating €320 billion in sales in 2023, which accounted for 7.5% of Germany’s GDP, Volkswagen is facing difficulties, particularly in the transition to electric vehicles (EVs).

The diesel scandal in 2015 led to a rapid pivot towards electric vehicles, which Volkswagen was ill-prepared for. While Tesla is excelling in all aspects—batteries, vehicles, and software—Volkswagen is struggling to keep up. Its EV offerings have failed to capture the market, leading to declining registrations in Germany, with no new “People’s Car” to drive EV adoption.

The second major issue is competition from China, where local manufacturers have gained significant market share in the EV sector. Volkswagen underestimated the competitive threat posed by Chinese automakers, and its once-dominant position in China has eroded. The European Commission has introduced tariffs on Chinese vehicles, but this is unlikely to alleviate Volkswagen’s struggles.

The third problem is the workforce. Volkswagen is considering closures or restructuring at several of its factories in Germany. The company’s historic roots in Wolfsburg, where its first factory was built, make the potential closures a highly charged issue. For many workers, the prospect of losing their jobs threatens not only their livelihoods but also those of future generations. This has led to significant unrest among employees and protests against management.

Volkswagen’s turnaround efforts are led by CEO Oliver Blume, who is navigating the difficult task of downsizing and making cuts in an organization with significant political and labor power. The company’s traditional governance structure has slowed decision-making, making it difficult to implement the necessary changes.

One potential solution could involve selling off factories to other companies, including Chinese manufacturers, which would allow jobs to be preserved. This scenario is politically sensitive, as it would highlight the irony of Germany losing its automotive dominance to China.

Despite the challenges, Blume remains optimistic, stating that new, highly competitive products are coming in 2025 and that partnerships with Chinese EV companies are progressing well. However, Volkswagen also faces risks in the U.S. market, where it exports more vehicles than anywhere else. If tariffs are imposed on German cars, it could further jeopardize the company’s future.

The transformation underway at Volkswagen reflects a broader shift away from Germany’s traditional strengths, and the future of the company, and possibly Germany’s industrial landscape, is uncertain.