Volkswagen is open to sharing factories at its European plants with Chinese automaking partners as the company fights to whittle down production costs and reduce complexities.
Co-producing with partners is one of a range of options Volkswagen is considering and could be a “clever solution” to fill up under-utilized factories and lower costs, Chief Executive Officer Oliver Blume said Thursday on a conference call.
The carmaker has already cut capacity and trimmed headcount in Germany, where workers hold powerful sway over company decisions.
“We expect tougher competition in the next years, especially from the Chinese car manufacturers, but we see ourselves very well prepared,” Blume said.
VW has ventures with Chinese automakers SAIC, FAW and Xpeng Inc., as well as technology partner Horizon Robotics.
The potential steps mark an escalation for the industry’s fight to stay competitive in Europe, where shuttering plants and shrinking workforces are a laborious and costly task. Stellantis, second to VW in Europe, is holding talks with a range of Chinese companies including Dongfeng Motor Group to share sites in the region, Bloomberg has reported.
VW wants to whittle down its global production capacity to 9 million cars from pre-pandemic levels of 12 million.
After measures to reduce capacity at the VW brand, Audi and in China, the company is seeking another reduction of 500,000 at its high-cost European factories, it said Thursday.
VW is also weighing other ideas. Blume said the carmaker could make next-generation, China-only models at European plants, after it examines which products may be attractive for buyers in the region.
The company is currently ramping up new models in China, including the E7X SUV from Audi’s novel sub-brand and the ID.UNYX 08 coupe. Both are, for now, only on sale in the world’s biggest auto market.
The plans show the pressure for Western mass-market carmakers, who are renewing efforts for fresh cuts to keep pace with intensifying competition in and from China.
After leapfrogging VW and other Western nameplates in China, brands like BYD and SAIC’s MG are surging in Europe.
The new competitors are now intensifying steps for manufacturing sites in the region after the European Union put in place import tariffs on China-made EVs.
Earlier Thursday, VW reported a decline in first-quarter operating margin as tariffs and increasing competition in key markets weighed, prompting the need for more savings. Group operating returns fell to 3.3% in the first three months of the year, down from 3.7%.
VW shares rose 1.2% at 1:23 p.m. in Frankfurt trading, after an earlier decline of as much as 3.3%.
VW’s plans to further downsize come as sales fall in the US and China with the carmaker seeing little chance of a quick bounce-back.
On Thursday, VW also reiterated plans to reduce complexity across vehicle platforms and model variants to boost savings.
The company made progress on efficiencies during the first quarter, citing a €1 billion ($1.2 billion) reduction in overhead costs and net cash flow of €2 billion.
Porsche and Audi — Volkswagen’s two traditional profit drivers — are struggling after their strategies on electric models didn’t work out as expected.
After years of development snags and delays of key models, both nameplates are trying to regain momentum to keep pace with the likes of Xiaomi, Nio and BMW on next-generation software.
Tariffs in the US are further undermining profits.
At Audi, operating profit and margin improved after more efforts to bring down costs.
Provisions on keeping pace with regulation on lowering fleet CO2 also fell and the unit incurred lower restructuring charges, Volkswagen said. The brand will provide more details on its results on May 5.
Thursday’s result includes an approximately €500 million charge for ending production of VW’s lone US-made EV, the ID.4 sport utility vehicle.
VW is in advanced talks with defense firms about the use of its plant in Osnabrück, Blume said, and that the carmaker’s experience would provide “a bit of feeling” for the prospect of future defense partnerships. Volkswagen rules out the production of weapons, he said.
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