VW's 630,000-strong workforce becomes existential liability as Chinese EV makers circle

Volkswagen's 630,000-person workforce — nearly 680,000 when Chinese joint ventures are included — has become the company's most pressing liability. The German automaker now plans to eliminate up to 100,000 jobs and close four domestic factories, a restructuring the company's supervisory board endorsed in early September. The cuts will touch every corner of the business, from the core VW brand to the luxury divisions Porsche and Audi. Other German automakers face similar pressures: Mercedes-Benz is cutting thousands of positions, and suppliers like Bosch are announcing major cost reductions.

VW's headcount problem did not emerge overnight. The company chose a production model fundamentally different from its global competitors — one that required controlling more stages of manufacturing internally, from components to software. That vertical integration demanded more workers and, critically, more expensive workers. Factory labor in Germany runs roughly double the cost of competitors' operations elsewhere. Over decades, VW also pursued an aggressive acquisition strategy, absorbing Skoda, Porsche, SEAT, Bugatti, and several truck makers. Each acquisition added complexity: different supply chains, different designs, different management layers. The strategy generated revenue, but it also created an organization that became increasingly difficult to operate.

For years, this bloated structure was sustainable because VW was profitable and Germany's powerful unions — backed by the state of Lower Saxony, which holds 20 percent of voting rights — successfully resisted workforce reductions. Lower Saxony, home to VW's Wolfsburg headquarters, has veto power over major decisions and has repeatedly pressured executives to preserve jobs and plants. The unions, meanwhile, negotiated wage increases and benefits that made VW workers among the world's best-paid autoworkers. Neither force had incentive to push for leaner operations.

Then the market shifted. Chinese EV makers gained serious technological ground while VW moved slowly into electric vehicles. That delay cost the company dearly in China, which accounts for roughly a third of VW's sales. Demand softened in Europe and other key markets. The company was repeating a mistake the American auto industry made in the 1960s and 1970s, when Ford, General Motors, and Chrysler were slow to adapt as Japanese and European competitors ate into their market share. By the time US automakers shifted to leaner production, a decade had passed and they had fallen significantly behind. Toyota, which produces a similar volume of vehicles as VW, operates with nearly half the workforce by relying more on suppliers, higher automation, and simpler management structures.

VW has already trimmed thousands of positions as profits came under pressure. The new plan targets an additional 50,000 job cuts worldwide, with tens of thousands in Germany. The company hopes to save roughly €4 billion annually through these reductions. But analysts warn the cuts may not be sufficient. The underlying cost structure remains high, and VW's decision-making culture remains slow. Meghan Ostertag, an analyst at the US-based Information Technology and Innovation Foundation, argues VW needs to invest far more heavily in automation to compete with leaner firms like China's BYD, one of Europe's fastest-growing EV brands. VW has lagged peers in plant automation but has recently stepped up investments in robotics and digital upgrades for EV production. The company is also planning its first sub-€20,000 electric vehicle for next year.

With China responsible for roughly 30 percent of VW's global vehicle output, analysts predict more production will shift to Asia. Some suggest VW might eventually share its European plants with Chinese EV producers — a scenario once considered unthinkable. Daniel Harrison, senior automotive analyst at London-based Ultima Media, notes that the complexities of integrating VW's many brands and supply chains have made the company very difficult to operate, and that deeper, more radical reforms may be necessary.

The German government is providing subsidies and loans for domestic EV battery plants to reduce reliance on Chinese imports. The European Union is advancing the Industrial Accelerator Act to boost competitiveness and shield strategic industries from unfair Chinese competition. The EU has imposed tariffs of up to 45 percent on Chinese-made EVs — far below the 100 percent levies the US charges, which have largely shut Chinese competitors out of the American market. Historian Niall Ferguson from Harvard warned that Europe has been slow to respond to China's strategy of massive subsidies to EV makers. "Unless there's radical change, I predict: Europeans will be driving Chinese cars on a massive scale very soon," Ferguson said. Economist Moritz Schularick, president of the Kiel Institute for the World Economy, suggested using market access as leverage — allowing Chinese brands to sell in Europe only if they produce locally. When asked about VW's long-term future, Schularick predicted the German automaker would "likely be bought by a Chinese car maker like BYD." Whether VW's restructuring plan proves sufficient remains an open question.