FRANKFURT, Germany — Volkswagen, Europe’s largest automaker, is confronting one of the most turbulent periods in its history as it grapples with slowing demand, a costly pivot to electric vehicles, and mounting global competition — particularly in China, a once-crucial market for the German giant.
The company, long a symbol of German industrial might, is facing financial pressure amid the industry's sweeping shift toward electrification. Profits are slipping due to the high costs associated with developing electric vehicles (EVs), sluggish sales, and significant market share losses in China. The automaker’s decision to scale back production in Germany has also caused friction with its influential works council and labor unions, who play a major role in corporate decision-making.
Volkswagen’s unique governance model — with the Porsche-Piëch family holding a majority of voting rights and the state of Lower Saxony owning a 20% stake — has drawn criticism for hampering swift strategic decisions in a fast-changing market. A recent agreement with labor leaders involving 35,000 voluntary layoffs and a reduction in production capacity is seen as a necessary step, though analysts say it may not be enough to restore global competitiveness.
The company's struggle has wider implications for German and European manufacturing. Nearly 250,000 industrial jobs have disappeared in Germany over the past five years, and Volkswagen’s trajectory is seen as a bellwether for the broader automotive sector.
With the European Union’s 2035 ban on new internal combustion engine cars looming, traditional automakers are under immense pressure to invest billions in EV development while remaining competitive. Volkswagen, steeped in a legacy of engineering excellence, remains committed to leading this transition.
“We are committed to making electric vehicles a core part of our business,” a Volkswagen executive said. “However, we recognize that it will take time and significant investment to achieve our goals. We are working hard to reduce production costs, improve performance, and deliver a seamless driving experience.”
Yet the road is fraught with obstacles. One of the most pressing challenges remains the high cost of EV batteries — a critical component that significantly drives up manufacturing expenses. Volkswagen is actively pursuing cost reductions through supplier partnerships and economies of scale.
“The battery is the heart of an EV, and it’s also one of the most expensive parts,” said one automotive expert. “Volkswagen must cut costs while improving battery performance and range to truly compete.”
In China, the world’s largest EV market, Volkswagen faces fierce competition from domestic manufacturers such as BYD and Xiaopeng. Chinese consumers are increasingly favoring local brands, which often offer more advanced technology and better pricing.
“I used to think Volkswagen was a great brand,” said one Chinese EV owner. “But now I prefer Chinese electric cars. They’re more affordable and offer features that better match my needs.”
Volkswagen is responding by improving its China offerings, enhancing product features, and expanding its customer service efforts in the region. Still, regaining lost ground will be a formidable challenge.
“The Chinese market is highly competitive,” the executive added. “We know we need to do more to win back consumer trust and market share.”
The stakes are high, not only for Volkswagen but for the future of the European auto industry. As automakers shift to electric, autonomous, and connected vehicles, adaptability and technological innovation will be paramount.
“The future of this industry will be defined by how quickly and effectively companies embrace EVs, AI, and software-driven technologies,” said an industry analyst. “Volkswagen’s next moves could determine whether it leads the next era or falls behind.”
In the United States, Volkswagen sees new opportunities for growth, though geopolitical headwinds — including potential tariffs and trade tensions — remain a concern. Meanwhile, Chinese automakers are increasingly eyeing the European market, posing an existential threat to established players like VW.
To remain relevant, the German automaker must make strategic decisions about its global production footprint, labor relations, and investments in next-generation technologies. The company’s plans to launch more affordable EVs, such as the ID.1, are a step in the right direction, but analysts caution that execution will be key.
The next two to three years will be pivotal for Volkswagen and the wider automotive industry. The company’s ability to innovate, adapt to shifting consumer preferences, and maintain cost efficiency may determine its long-term survival.
As Europe’s industrial landscape evolves and the electric revolution accelerates, Volkswagen’s response will likely shape the future of manufacturing — not just in Germany, but across the continent.
