Volkswagen's "Slimming Story"

For a long time, there was a consensus in the automotive industry: the center of the global automobile industry is Germany, and Volkswagen is the most important symbol of this center.

At its peak, Volkswagen could sell more than 10 million cars a year, with more than a dozen brands under its umbrella including Volkswagen, Audi, Porsche, Skoda, Bentley, Lamborghini, etc., and a vast manufacturing network formed by factories across the globe.

But now, the situation has changed for this German giant.

Recently, news emerged that Volkswagen plans to reduce its global group production capacity from about 10 million vehicles to 9 million, a cut of nearly 10%.

Volkswagen CEO Oliver Blume does not intend to continue holding on stubbornly. His solution to excess capacity is to consider allowing Chinese companies into Volkswagen factories to utilize the surplus production capacity.

A month ago, the Financial Times pointed out that Xpeng Motors is negotiating with Volkswagen to acquire one of Volkswagen's complete vehicle plants in Germany.

Previously, Volkswagen extended an olive branch to Xpeng, and the two sides jointly developed pure electric models aimed at the Chinese market; meanwhile, after Xpeng's sales momentum in Europe increased, it entrusted Austria's Magna Steyr factory for manufacturing, showing a clear desire to expand local European production capacity.

This supply and demand from both sides happen to fit together perfectly.

Looking back, twenty years ago the biggest dream of Chinese car companies was to access Volkswagen's supply chain; ten years ago, Chinese automakers wanted to learn how to build cars from Volkswagen; and today, Chinese carmakers are beginning to have the opportunity to take over Volkswagen's factories.

This role reversal is itself a microcosm of the changes in the global auto industry landscape.

The problems for Volkswagen first appeared in China.

The Chinese market once was Volkswagen's most important source of profits. Around 2019, Volkswagen Group’s annual sales in China exceeded 4.2 million, accounting for nearly 40% of its global sales. At that time, Chinese consumers saw Volkswagen as synonymous with quality and reliability. Volkswagen leveraged its scale advantage to copy its mature global technology system into the Chinese market, thereby earning a much higher profit return than in Europe.

But the new energy era has changed the rules of the game. When a Chinese newcomer can complete a generation of product iteration in two to three years, Volkswagen’s traditional development process often requires much longer.

To keep up with changes in the Chinese market, Volkswagen began actively learning from Chinese companies. Now, such cooperation seems to be extending further into manufacturing. According to insiders, if in the future some of Volkswagen’s European factories could produce Chinese brand cars or be operated by Chinese automakers, the global automotive manufacturing system once dominated by German carmakers will see a new model of industry division.

For Volkswagen, this is actually a pragmatic choice. Because the most expensive asset in the automobile industry isn’t technology, but factories. A modern car factory often requires billions of euros in investment. Once factory utilization falls, fixed costs quickly erode profits.

Data shows Volkswagen’s operating profit margin for the 2025 fiscal year is only 2.8%. According to the company’s published goals, after restructuring is complete, it hopes to restore its operating profit margin in fiscal year 2026 to 4-5.5%, and strive for 8-10% in the long term.

To achieve this target, simply selling more cars is no longer realistic.

Blume stated that in an "environment lacking growth prospects," the group must adjust its capacity to 9 million vehicles to match real market demand.

Behind this statement actually lies the common issue facing the entire European automotive industry.

On one hand, uncertainty in the U.S. market is increasing. In recent years, the U.S. has continuously adjusted trade policies, raising the costs of some imported cars and components. For Volkswagen, which relies on global supply chains, this affects profitability in the North American market.

On the other hand, growth in local European demand is limited. The Chinese market has already transformed from a global automotive growth engine into the most fiercely competitive battlefield. In the past ten years, Volkswagen could rely on the Chinese market to earn excess profits; but in the next ten years, it needs to face the challenge of Chinese brands worldwide.

From this perspective, Volkswagen cutting capacity by 1 million means it no longer prioritizes "being bigger" as its main goal, but puts "living more efficiently" first.

In fact, this change is not happening only to Volkswagen. In recent years, traditional automotive giants such as Ford, GM, Stellantis have all been closing factories, reducing models, and trimming costs. The global auto industry is shifting from pursuing scale expansion to seeking capital efficiency.

Volkswagen’s specialty is just that it happens to stand at the intersection of the old and new eras.

In the coming years, whether Volkswagen will actually sell some factories, or whether Xpeng will become the first Chinese newcomer to take over production capacity from a traditional European carmaker, remains uncertain.

But one thing is increasingly clear. As the global car market enters a phase of stock competition, what truly decides victory is no longer who owns more factories, but who can produce products consumers are willing to buy at lower cost, faster speed, and higher efficiency.

In this sense, whether Volkswagen factories produce Volkswagen cars or Chinese cars in the future may already not matter that much.

More importantly, the focus of the global auto industry is slowly shifting from the banks of the Rhine to the Yangtze River basin. And Volkswagen’s proactive capacity reduction this time, in some sense, is precisely a sketch of this change.

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