VW's turnaround will depend on its ability to fight the EV price war.Clearly, ditching its old slogan, 'Das Auto' - The Car - for its current one, 'Drive Bigger', hasn't worked for Volkswagen. VW's announcement of plant closures and layoffs in Germany caps a series of setbacks over future-proofing its business. The company's problems spring from China, its largest market that it, ironically, dominated for decades. There, buyers are turning their backs on fuel-powered cars, favouring homegrown EVs instead.
VW does not have a strong line-up of EVs just yet, and declining sales in China have offset the company's sales in the rest of the world. Its electric strategy does not match up to rivals like BYD, which is leading a surge of EV exports to Europe. As a follower, VW has been caught in tariff wars between China and the EU. Germany, earlier this year, cut subsidies for EVs, making VW's switch to EVs more difficult.
Negotiations with unions over layoffs are not going to be easy with Germany facing labour shortages that have thrown up unusual experiments like 4-day workweeks. VW plays a key role in powering German manufacturing and the company's performance will have knock-on effects.
The country is yet to resolve the question of paying for climate mitigation costs. Its auto industry is unlikely to benefit from subsidies on the scale of Chinese carmakers. This could push German auto companies to evaluate alternative approaches to emission reduction while China 'dumps' cheap EVs in their home and principal overseas markets.
The tide could turn for VW if car buyers outside China are not entirely convinced EVs are the way to go. EVs involve extra costs for developing the tech as well as setting up charging infra. If governments become tight-fisted with subsidies, consumers will have to pick up these extra costs, which could slow down EV sales.
VW's turnaround will depend on its ability to fight the EV price war. Tesla has been forced by Chinese EV makers to lay off staff. The pain could be even more for VW. A cautionary tale, if there was one, of a market biggie not keeping up in the fast lane.
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