VW Faces EU Demand Challenges In Europe, Impacts On Zwickau's Main Factory

VW's Zwickau factory in Germany. (Doc. Volkswagen Group)

JAKARTA - Volkswagen Group, the world's number two largest vehicle manufacturer, is now facing a number of issues related to demand for electric vehicles in the European market. The impact of this situation is starting to be felt at its main factory in Zwickau, Germany.

These obstacles arise as a result of a decline in demand followed by subsidy reductions, rising inflation, and fierce competition from some competitors, such as Tesla and electric car manufacturers from China. All of these factors have the potential to result in production cuts and their impact on employment.

The Zwickau factory owned by VW is one of the largest facilities in Europe. The company has turned this plant from initially only assembling cars with internal combustion engines (ICE) into a fully focused factory on electric cars.

There are about 2,700 contract workers at the Zwickau facility near the Czech border to meet expectations of a surge in demand for electric vehicles. However, orders from corporate clients that account for about 70% of the IDs made at this plant have fallen since federal subsidies for electric vehicles ended this month.

Volkswagen previously planned to maintain existing jobs during the ICE car era by increasing the production capacity of electric cars to 330,000 units. This is because electric car production is considered more efficient, but requires greater volume to maintain employment.

This transformation initially went well, with six MEB-based models produced at the plant, including VW ID.3, Audi Q4 e-tron, Cupra Born, and others. Production even hit a record with 7,100 units per five working days in November 2022, increasing to 7,300 vehicles in the same period in March 2023. However, the plan does not match the current market conditions.

According to a Reuters report on September 14, market conditions began to worsen. This was confirmed by a company spokesman, who announced that some employees with limited contracts would not get permanent jobs.

"Although Volkswagen remains 100% confident in the transition to electric mobility, given current market conditions, we cannot extend the 269 contracts that will expire within 12 months," a Volkswagen Group spokesman said.

Meanwhile, according to people familiar with the matter, the fate of some 2,000 additional contract staff is still uncertain, as the final decision has not been made.

The demand issue is nothing new for Volkswagen. Previously, the company had also postponed the launch of the third shift at Emden factory, Germany, which is the second ID.4 production site in the industrial country. This situation also has the potential to affect the launch of the ID.7 sedan model.