Volkswagen’s Turbulent Crossroads

Volkswagen is facing one of the most challenging chapters in its 89-year history, as mounting competition from Chinese automakers, declining demand in Europe and stiff tariffs in the United States converge to create a perfect storm.

The company, once a symbol of German industrial strength, is now under immense pressure to rethink its strategy, with both political and labour forces weighing heavily on its next moves.

Olaf Lies, premier of Lower Saxony and a key shareholder, has urged Volkswagen to consider producing models currently developed in China at German plants. Speaking to German news agency DPA, he said: “This would also create the opportunity for new development and innovation at our locations. To me, it’s about stabilising employment and capacity utilisation at our plants, instead of watching others build new plants outside of Germany.” Lower Saxony, holding a 20% voting stake, is particularly invested in this debate as it hosts five of Volkswagen’s six western German assembly plants.

The urgency of Lies’s comments is underscored by looming job cuts. According to Reuters sources, Volkswagen’s supervisory board has been informed of plans to close plants in Hanover, Zwickau, Emden and Audi’s Neckarsulm site.

More than 45,000 jobs would be at risk, adding to 50,000 cuts already planned. In absolute terms, laying off 100,000 workers and closing four assembly plants would surpass even the drastic restructuring seen at General Motors during its 2009 bankruptcy. Chief Executive Oliver Blume has presented proposals to reduce investment by 15% to just over €130 billion over five years, alongside spinning off the VW brand and parts operations.

Yet unions and the state of Lower Saxony have vowed to resist, with IG Metall and Volkswagen’s works council issuing a joint statement: “Should such plans go ahead we would do everything in our power to prevent them.”

Investor sentiment reflects the gravity of the situation. Volkswagen shares recently fell to 16-year lows, with scepticism mounting over whether cost-cutting alone can address the deeper issue of weak sales. Ingo Speich of shareholder Deka told Reuters: “They do not address the root cause, which is weak sales. VW must bring attractive products to market that are in high demand; that would put an end to the debate over costs.”

The erosion of Volkswagen’s dominance in China highlights this challenge. Once the leading foreign automaker, it was overtaken by BYD in 2024 and slipped to third place behind Geely by 2025. Non-Chinese automakers’ market share fell from 57% in 2020 to just 32% in 2025, according to AlixPartners. Independent analyst Matthias Schmidt observed: “The market reality is hitting the German giant hardest.”

Meanwhile, Chinese automakers are not only thriving domestically but also expanding aggressively into Europe. BYD, Chery, SAIC and Leapmotor doubled their combined European market share through May compared with a year earlier, intensifying the pressure on Volkswagen’s relevance both at home and abroad.

In a related development, Porsche is reportedly considering shifting production of its Cayenne SUV from Slovakia to Leipzig, a move reported by Frankfurter Allgemeine Zeitung that would boost German capacity utilisation and echo Olaf Lies’s call for more local production. Whether Volkswagen embraces such strategies remains uncertain, but the company’s future hinges on balancing global competition with domestic stability.