Volkswagen 2024: how China's BYD-led EV surge collapsed VW's China profitability and triggered the first German plant closures in the company's 87-year history
Volkswagen Group announced on October 28, 2024 that it would close at least three German plants and lay off tens of thousands of workers — the first German plant closures in VW's 87-year history and a defining moment for the European auto industry. The drivers: China sales collapsed (VW lost approximately 30% of its China profitability between 2020 and 2024 as BYD, Geely, Xpeng, NIO, Li Auto captured Chinese consumer EV demand); European EV demand softened (VW had built capacity for higher EV growth than materialized); and German labor-cost structure remained substantially higher than competitive automakers globally. CEO Oliver Blume (since September 2022) faces structural challenges that have intensified through 2024. The Volkswagen 2024 chapter is studied as a worked example of legacy European automaker crisis confronting both China competitive disruption and home-market labor-cost rigidity.
- Story: Volkswagen Group announced October 28, 2024 it would close at least three German plants — first plant closures in VW's 87-year history. Drivers: China sales collapsed (~30% China profitability decline 2020-2024 as BYD, Geely, NIO, Xpeng, Li Auto captured Chinese EV demand), European EV demand softened, German labor costs structurally elevated. April 2024 Xpeng $700M+ partnership signaled VW couldn't develop competitive Chinese-market EVs alone. December 20 2024 IG Metall compromise framework reduced capacity by 35,000 jobs by 2030 while avoiding mass plant closures. CEO Oliver Blume (also Porsche CEO) faces ongoing strategic challenges including Cariad software restructuring, Audi struggles.
- Why it matters: VW 2024 is the worked example of legacy European automaker facing simultaneous China competitive crisis and home-market labor-cost rigidity: both restructurings are required, both are politically and strategically difficult.
- Takeaway: Legacy-incumbent China collapse reduces capacity for international restructuring; both must be addressed.
- Takeaway: German/European labor-cost rigidity prevents flexible capacity adjustment that competitive position requires.
- Takeaway: Painful home-market restructuring is structurally necessary when global competitive position has fundamentally changed.
Volkswagen 2024 crisis — the four-step story
Volkswagen 2024 crisis at a glance
Quick facts
The pre-2024 VW global position
Volkswagen Group entered 2024 as one of the largest global automakers, with multiple structural strengths:
- 12-brand portfolio: VW, Audi, Porsche, Skoda, SEAT, Cupra, Bentley, Lamborghini, Bugatti, Ducati motorcycles, Scania trucks, MAN trucks.
- Global scale: substantial production capacity in Europe, China, Mexico, North America, South America.
- Premium brand margins: Porsche and Audi produced disproportionately high margins.
- China market position: VW had been the largest single foreign automaker in China for decades. China had been ~40% of Group revenue at peak.
- Electric-vehicle commitment: $50B+ EV investment commitments through 2027, with ID.4, ID.7, Q4 e-tron, Macan EV among major launches.
- Cariad software subsidiary: VW had committed to in-house automotive software platform to compete with Tesla and Chinese OEMs. The Cariad investment had been substantial but execution problems had been visible since 2022.
The China competitive collapse
Through 2020-2024, Volkswagen's China position collapsed dramatically:
- BYD overtook VW: BYD's combined battery-electric and plug-in-hybrid sales overtook Volkswagen in China starting 2023. By 2024, BYD's China dominance was structural.
- Chinese EV brands captured demand: NIO, Xpeng, Li Auto, Zeekr, Avatr, and various new entrants captured Chinese consumer EV demand that VW had projected for ID-series models.
- VW China EV sales weak: ID.4 and ID.6 had launched but didn't compete effectively with Chinese alternatives on technology, design, or pricing.
- VW China ICE sales declined: as Chinese consumers shifted to EVs, VW's traditional ICE volume (which had been the profit driver in China) declined.
- China profitability decline: approximately 30% decline in China profit contribution from 2020 to 2024. China had been VW's largest single profit center.
- Xpeng partnership (April 2024): VW announced $700M+ investment in Chinese EV maker Xpeng for technology partnership. The deal signaled VW couldn't develop competitive Chinese-market EVs alone.
- China JV restructuring: SAIC-VW and FAW-Volkswagen (the two main China joint ventures) faced revenue and profitability pressure. JV partners' positions were being renegotiated.
The October 2024 German plant closures announcement
On October 28, 2024, Volkswagen Group made the unprecedented announcement that it would close at least three German plants:
- Plant closure decision: at least three German plants targeted for closure; specific facilities not initially identified.
- Historical precedent: VW had never closed a German plant in the company's 87-year history (founded 1937). The decision represented major rupture with German labor-relations tradition.
- Job losses: estimates ranged from 20,000 to 50,000+ layoffs across affected plants and supplier facilities.
- Pay reductions: VW also announced pay reductions for retained workers (approximately 10% wage cuts), with additional negotiation through works councils.
- Strike action: IG Metall union responded with strike actions through December 2024. Production halts at multiple plants.
- Government response: German Chancellor Olaf Scholz publicly engaged with VW management and unions. Federal involvement in mediating crisis.
- December 2024 compromise framework: VW and IG Metall reached preliminary agreement on December 20, 2024 reducing capacity by 35,000 jobs by 2030, but reportedly avoiding mass plant closures in exchange for capacity reductions and pay restraint.
- Outcome uncertain: specific facility outcomes and final job-loss numbers still being negotiated. The structural pressure remains.
The Oliver Blume leadership challenge
Oliver Blume became Volkswagen Group CEO in September 2022, succeeding Herbert Diess who had been pushed out after multiple software-execution failures at Cariad. Blume had been (and continues to be) Porsche CEO, with the dual-role arrangement attracting attention:
- Dual CEO role: Blume manages both Volkswagen Group and Porsche AG separately. The arrangement is unusual and has drawn criticism for divided attention.
- Porsche success: Porsche has continued strong performance under Blume's continued operational leadership.
- VW Group challenges: Blume's first two years as Group CEO have been dominated by China crisis and 2024 German plant restructuring.
- Strategic priorities: rebuild China strategy (Xpeng partnership), reduce German capacity, accelerate cost discipline, restructure Cariad software organization.
- Cariad restructuring: Blume executed leadership changes at Cariad in 2023. Software development has been re-decentralized to brands (Audi, VW, Porsche each leading own software roadmap). Cariad's role reduced.
- 2024 Audi struggles: Audi has been one of the more troubled VW Group brands, with delayed EV transition, complex product portfolio, and competitive pressure. Audi's underperformance compounds Group challenges.
- Long-term tenure question: whether Blume's dual-role arrangement is sustainable through ongoing Group crisis is open question. Some calls for VW Group standalone CEO.
How RGM thinks about legacy-automaker China + home-market crises
Volkswagen 2024 is the worked example of legacy European automaker facing simultaneous China competitive crisis and home-market labor-cost rigidity. The structural challenges are interconnected: China profit collapse reduces capacity to invest in product, software, and labor-relations flexibility; German labor-cost rigidity prevents flexible capacity adjustment; multi-brand portfolio complexity requires ongoing strategic-coordination overhead.
Our framework for clients in similar legacy-incumbent situations: when home-market position is constrained by labor-cost rigidity and international position is collapsing under competitive disruption, the strategic response requires both home-market restructuring (politically difficult, as VW is experiencing) and international strategy reset (requiring potentially humbling partnerships, as Xpeng investment signals). Neither response alone is sufficient; both are required and both produce real political and strategic costs. We tell clients in similar legacy-incumbent positions to honestly evaluate whether home-market labor cost-structure remains compatible with global competitive position; if not, painful restructuring is structurally necessary regardless of political resistance. VW 2024 is the worked example of what this restructuring looks like when delayed too long.
Frequently asked questions
Will VW actually close German plants?
The December 2024 IG Metall compromise framework reportedly avoided mass plant closures in exchange for 35,000 job cuts by 2030 and pay restraint. The structural capacity reduction is still substantial. Specific outcomes depend on final negotiations and how individual facility utilization develops. Some plants may close in coming years; others may be repurposed or partially used.
Can VW recover in China?
Difficult but possible. The Xpeng partnership represents pragmatic acceptance that VW alone can't develop competitive Chinese-market EVs. SAIC-VW and FAW-Volkswagen JV restructuring is ongoing. Long-term recovery would require VW to be one of multiple competitive Chinese-market EV brands rather than category leader. The structural position will likely be substantially smaller than 2020 era.
Is Porsche a buffer for VW Group?
Yes, importantly. Porsche's 2022 IPO (29% public stake) and continued strong performance produce profit contribution that offsets Group challenges. Porsche AG's structural advantages (premium positioning, customer loyalty, US market strength) make it the most resilient VW Group brand. Concerns about Blume's dual-role CEO arrangement are partly about Porsche's importance to Group financial position.
What's Audi's situation specifically?
Difficult. Audi has been one of the more troubled VW Group brands through 2023-2024. EV transition (Q4 e-tron, Q6 e-tron, others) has been delayed and product reception mixed. Audi China sales declined sharply alongside broader VW China weakness. Audi's premium positioning relies on differentiation from BMW and Mercedes-Benz that has been increasingly difficult to maintain. Strategic reset under Audi CEO Gernot Döllner ongoing.
Will Cariad survive?
In reduced form. Blume's restructuring decentralized major software development back to individual brands (Audi, VW, Porsche). Cariad continues but with reduced scope. Whether Cariad as standalone entity makes long-term sense is questionable; further reorganization possible. The original Cariad ambition (single automotive operating system across VW Group) has been substantially abandoned.
Sources & references
- German plant closures announcement — VW Group October 28 2024 announcement.
- Xpeng partnership coverage — Reuters coverage of April 2024 Xpeng investment.
- IG Metall negotiations coverage — FT coverage of December 20 2024 compromise framework.
- VW investor relations — VW Group investor materials.
- Oliver Blume dual-role coverage — Bloomberg coverage of dual-CEO arrangement.