Volkswagen’s EV dreams fade unleashing uncertainty among German workers

Just over five years since then-chancellor Angela Merkel visited Zwickau in eastern Germany to inaugurate Volkswagen’s first electric vehicle-only factory, hailing it as a “flagship” for the industry’s transformation, workers are bracing themselves for a much gloomier shift.

Production at the plant is set to be slashed as part of a compromise struck in December between Europe’s largest carmaker and its powerful works council and union IG Metall. The deal eliminated the threat of lay-offs until 2030 and factory closures in Germany, but VW will halve its production capacity, leaving factories such as Zwickau to compete for future investments.

Arno Antlitz, chief financial officer of VW group, told employees in January that in the future “we will only invest in competitive plants. Germany cannot be an exception.”

“It’s clearly not a good deal for us,” said one employee at the Zwickau plant, highlighting that the deal had won Wolfsburg several models at present produced in Zwickau.

Danny Auerswald, head of VW’s operations in the state of Saxony near the Czech and Polish borders, referred to the harsh business environment surrounding the carmaker. “We cannot ignore reality,” he said.

The company’s deliveries in Europe reached 3.8mn vehicles a year — a drop of nearly 1mn compared with when Merkel visited in 2019 — driven by lukewarm interest in its EV line-up.

Auerswald said the company’s Saxon plants — including Zwickau and Dresden, which has been earmarked for “alternative use” as car output winds down this year — will have to cut costs by roughly 20 per cent to remain contenders for producing future VW models.

For a region that is tilting politically towards the far right, the fallout from VW’s retreat in Saxony is rippling far beyond the factory gates. As Germany heads into federal elections later this month, frustration over economic decline has helped fuel a surge in support for the Alternative for Germany (AfD) party, which has dismissed the transition to EVs as a “fairy tale”.

The concern over livelihoods is palpable in the polls, as support for Germany’s traditional political parties has slumped in the region. The AfD came a close second in Saxony’s parliament ballot last year. In Zwickau, it is the largest party.

VW’s plants outside the state of Lower Saxony — where the carmaker is headquartered and which holds 20 per cent of the company’s voting rights — had little leverage in last year’s discussions between executives and the union.

The Porsche-Piëch family, VW’s majority shareholders, had been pushing for radical cuts including plant closures. Despite its high level of automation compared with the company’s main plant in Wolfsburg, Zwickau, once described by its owner as the “most efficient electric car plant in Europe”, was placed on the chopping block.

Although outright closures have been avoided, the decision to halve German output capacity from nearly 1.5mn units to 750,000 — below the 900,000 that the brand produced in the country last year — is a clear sign the company is not expecting European sales to recover in the foreseeable future.

“[In Europe] we have a market that is no longer growing and probably, in the future, will stagnate,” David Powels, chief financial officer at VW’s flagship brand, told the Financial Times

He added that competition in the carmaker’s home region was set to increase from Chinese EV companies making inroads. “It’s not just new players with new technologies, these new players have a lower cost base and much higher efficiency and productivity,” Powels said.

The agreement — in which VW has pledged to repurpose two of its German plants spurring speculation of a potential sale to rivals — has sparked questions about whether ending production at the plants would lead to outright closures.

Powels rejected such suggestions, saying the company had “achieved what we need to achieve, and that is realigning and reducing capacity”.

He was confident that lower fixed costs secured by the agreement with workers would help lower prices on future EV models and boost sales in Europe.

“We want to be able to offer competitive new technology at a price point which enables entry-level customers to come in,” he said, addressing criticism that the Volkswagen — or “people’s car” — had become too expensive.

VW’s works council led by Daniela Cavallo also hailed the deal — agreed a few days before Christmas — a victory, saying “we finally made it!” in a memo to employees.

But in Zwickau, VW workers are more subdued. Wolfsburg has won the right to take over production of VW’s electric ID line from 2027, leaving Zwickau with only the Audi Q4 e-tron. In exchange, the plant has been promised future business in car recycling, worth roughly 1,000 jobs.

“What will the future bring for us?” asked an employee who has spent his entire working life at the Zwickau plant. “If we stop producing cars, the suppliers [in Saxony] will stop production too — we are creating a poor country.”

Zwickau had felt the reverberations of VW’s retreat from EVs even before the December agreement. The company added nearly 3,000 temporary workers in 2019, when it converted the factory into a modern EV plant, but has since cut the majority of those jobs. By the end of this year, a further 1,000 temporary workers will have left.

Unless Zwickau secures production for future models, its current business will not sustain the current workers whose jobs are only guaranteed until 2030.

“A lot of people in my region make their living from VW,” said Zwickau’s mayor Constance Arndt. “There is great uncertainty now.”