Volkswagen is experiencing serious problems

Manfred Wulff, head of the works council at the Emden plant, told the German news agency and Nordwest Zeitung that number of staff working on the plant will be reduced. Around 300 of the 1 500 temporary workers will not have their contracts extended, the company reported. These measures indicate that Volkswagen is facing serious problems due to the sales crisis.

Demand for Volkswagen's electric vehicles has dropped by 30% compared to the initially planned production volumes. Potential buyers of EVs are showing hesitation, which has led to postponing production of the ID.7 model from July 2023 to later this year.

Competition among electric car manufacturers is growing

Volkswagen's troubles have raised concerns among investors. The difficulties reach beyond the domestic economic recession, as rivals such as Tesla or Korean manufacturers are making rapid progress in the electric car market. In addition, there are concerns that Chinese manufacturers may overtake Volkswagen in the future. It is believed that Volkswagen is the least innovative of all manufacturers and is at risk of losing its customers. The company's conservative approach to electromobility does not address the real issues that customers struggle with.

Although Volkswagen has announced significant investments into transformation and renovation of the Emden plant for electric vehicles on the MEB platform, it seems that these investments may not be enough to compete with more innovative offerings on the market. Customers seeking EVs are looking for cutting-edge innovations and features that should be standard in the industry, such as 22 kWh home charging, standard heat pumps and DC charging with at least 170 kWh in all models.

The hope for incentives

Olaf Lies, Minister of Economic Affairs for the state of Lower Saxony, has called for a reduction in value-added tax (VAT) and other incentives for electric vehicles in order to compensata for the decline in sales. However, this solution may only have a local impact and may not completely solve the fundamental problems.

Volkswagen is facing downturn in China

VW produced 97,000 battery-electric vehicles between January and May this year, but only sold 73,000 of them. Sales in China, the company's biggest market and the world's largest plug-in vehicle market by volume, dropped in 25%.

Volkswagen is in a difficult situation and its ability to adapt and overcome these challenges remains rather uncertain. In the meantime, the company must find ways to manage these emerging issues and adapt to an increasingly competitive EV market.

A VW spokesman said to the Nordwest-Zeitung: "We are confident that utilization of the Emden plant will increase after the launch of the ID7 at the end of the year."

Impact on Slovakia

As long as production in Slovakia is concerned, there is currently no information to suggest that problems faced by the German subsidiary could have a direct impact on Slovak production. However, given the current situation, it is essential that the Slovak plant focuses on efficient management and adaptability to the changing market in order to remain competitive. Volkswagen should invest in innovation and improve its products in order to maintain its position in the electric vehicle sector.

The start of 2021 marked a strong increase of Volkswagen shares, specifically by almost 70%.* Currently, the price is falling correctively while maintaining a long-term bullish trend, creating attractive investment opportunities for investors who plan to buy VW shares. [1]

Adam Austera, Chief Analyst at Ozios

* Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.