Germany’s auto industry struggling with high investment costs and low demand for electric cars

Carmaker Volkswagen is facing “enormous efforts” to meet its own business targets due to high costs and decreasing revenue, said the company’s CEO Oliver Blume. The company, Europe’s largest automaker, will resort to austerity to improve its balance sheets, reported newspaper Frankfurter Allgemeine Zeitung. Although programmes for greater cost efficiency have already been implemented, investors seem to lack confidence in their effectiveness as Volkswagen’s stock price continues to slide. High one-off costs to change production lines to electric vehicles and batteries, on top of compensation payments for workers that are being let go, are impacting the company’s profits, particularly for its core brand VW, the company said. CEO Blume added Volkswagen would therefore reduce its investments in the coming planning period and seek to reduce costs by engaging in joint ventures, for example, with U.S. e-car brand Rivian.

In a separate article, the Frankfurter Allgemeine Zeitung reported on job cuts at car industry supplier ZF Friedrichshafen, which plans to remove up to 14,000 of the 54,000 jobs in Germany by the end of 2028. Like Volkswagen, the decision comes on the back of financial troubles as ZF Friedrichshafen experiences falling revenue and high debt. The company said reduced orders by carmakers and a lack of interest in battery-powered electric vehicles were taking a toll on its profits. “This does not stay without consequences for us as a supplier,” said Holger Klein, CEO of ZF Friedrichshafen. He said the company contemplated downsizing at several locations in Germany, especially at production sites that specialise in a single product, and become more competitive again by creating larger compound production sites.

The automotive industry is a central pillar of the German economy and directly employs hundreds of thousands of people in the country. The shift to electric mobility is shaking up longstanding industry networks and production practices centred on combustion engines which is exacerbated by the German carmakers’ late decision to significantly ramp up their investments in EVs and battery technology, where they face fierce international competition and lag behind in key fields. While the German government has set out to support the industry in bringing 15 million electric cars on the road by 2030, this goal increasingly appears to come out of reach and according to a recent analysis by think tank Agora Verkehrswende can only be achieved by intensifying cooperation with carmakers from China.