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VW feels the impact of Chinese competition in Europe
Volkswagen needs to deepen cost-cutting measures to remain competitive in the face of the advance of Chinese automakers in the European market, CEO Oliver Blume said on Friday (24), following the release of quarterly results that showed a mixed performance.
The world's second-largest automaker is trying to balance the need to reassure investors with the defense of a sweeping restructuring plan. At the same time, it is grappling with the impact of tariffs and a weak Chinese market, while weighing the potential closure of some factories in Germany.
"When we look to the future, we see risks increasing," Blume said, citing the existence of more than 150 car manufacturers in China. "And they are all coming to the market," he added, referring to Europe.
The executive proposed doubling the number of previously planned job cuts—raising the total from 50,000 to 100,000 positions—and warned that four German factories are at risk of closure after 2030. He noted that all parties involved are aware of the challenges facing the company.
Despite this, Blume was unable to secure full approval for his restructuring plan during a supervisory board meeting held earlier this month. The decision paves the way for a new round of negotiations with labor unions, following an agreement reached in late 2024 that outlined the initial 50,000 job cuts.
Some analysts believe the second-quarter results indicate the company is stabilizing. Revenue exceeded market expectations, and the group remains on track to raise its operating margin this year to a range of 4% to 5.5%.
"Volkswagen's results suggest the company is beginning to stabilize, despite a challenging environment," said Morningstar analyst Rella Suskin, highlighting the company's strong cash generation. Bernstein analysts stated that Volkswagen's management is trying to "balance the need to reassure investors while warning employees that the situation is serious"—a challenge considered nearly impossible.
Profit forecast maintained...Volkswagen's operating profit fell 9.5% between April and June, to €3.5 billion ($3.98 billion). Revenue totaled €82.4 billion, allowing the company to maintain an operating margin of 4.2% for the quarter, within its annual target range of 4% to 5.5%.
The company maintained its profit forecast for the year but dropped its revenue growth projection. It now estimates a sales decline of up to 3% in 2026.
Shares of Volkswagen—owner of the VW, Skoda, Audi, Porsche, Bentley, and Lamborghini brands—fell as much as 3.2% following the results announcement but recovered some of those losses during the trading session.
Chinese competition advances in Europe...Amid a prolonged slowdown in the domestic Chinese market, the country's automakers have expanded their presence in Europe with lower-cost, high-tech electric vehicles and plug-in hybrid models. This trend has already eroded Volkswagen's long-standing market leadership in China.
In addition to exporting vehicles, companies like BYD and Geely are setting up factories in Europe, prioritizing countries with lower production costs, such as Hungary and Spain.
Meanwhile, Volkswagen is seeking alternatives to utilize idle capacity at its German plants. Options under consideration include producing models designed for the Chinese market domestically and forging partnerships with defense sector companies.
Volkswagen's works council stated that merely cutting costs would not be enough to restore the company's competitiveness and advocated for increased investment in technology and new product development. According to a council spokesperson, following the summer break at German factories, worker representatives will resume negotiations with management to discuss the measures needed to ensure the company's long-term sustainability.
Blume stated that he expects to finalize these decisions before the end of the year.
Chinese competition is no longer confined to a handful of “sensitive” segments. It now reaches the traditional pillars of made in Europe: automotive, machine tools, batteries, chemicals and industrial equipment. That is the core message of a report published in February 2026 by France’s High Commission for Planning and Strategy, which describes a new wave of competition of “unmatched” scale.
The acceleration since the post-Covid period is driven by two combined effects: rapid quality upgrades across Chinese products and structural cost advantages. The report highlights production cost gaps that are often estimated around 30–40% versus Europe for comparable quality, reshaping the competitiveness equation.
Volkswagen’s restructuring hits a wall with Germany’s powerful unions...Volkswagen’s global CEO, Oliver Blume, faces an uphill battle to push through a major overhaul of Europe’s largest automaker after failing to secure initial support from the supervisory board—a body that, under the German governance model, sits above the executive board.
Blume’s proposals—which include further job cuts, plant closures in Germany, and potentially even spinning off the VW brand from the rest of the conglomerate—were rejected by 12 of the 19 supervisory board members during a meeting in Wolfsburg on Thursday.
The company, which also owns Audi and controls Porsche, presented only vague goals following Thursday’s meeting. It pledged to reduce the complexity of its vast product portfolio, aiming to focus its lineup on the most attractive market segments.
There was “no sign of progress toward an agreement on plant closures, a five-year investment plan, or additional staff cuts,” stated Jefferies analyst Philippe Houchois in a report to clients.
Consequently, news that the company plans to halve its model lineup was met with indifference. VW’s preferred shares, which have fallen nearly a third this year, showed little movement on Friday.
While change at VW is always difficult due to its unique structure, the challenges facing its industrial future have rarely been greater. Profits in China are unlikely to recover as local rivals like BYD win over buyers, while US tariffs erode returns for the luxury brands Audi and Porsche.
VW has struggled to cut production costs in Germany, which Jefferies estimates are about two-thirds higher than in other locations such as Portugal and Spain. High labor and energy costs, compounded by the burden of bureaucracy, are the primary factors—alongside a workforce accustomed to generous bonuses and empowered to defend its own interests.
Investors' patience will be tested in the coming months after Blume stumbled at the first major hurdle in his attempt to revive flagging profits. The company’s market value remains near a decade-low of around €36 billion ($41.1 billion), meaning it trades at little more than its net cash position.
VW’s executive board “is taking responsibility for the company’s sustainable future—at a time when the automotive industry is under intense pressure worldwide,” Blume said in a statement on Friday. The turnaround plan is “positioning the group to be even more robust and competitive, even in a highly challenging global environment.”
The unions’ swift response was to ramp up pressure on the CEO. Daniela Cavallo, head of VW’s works council and a member of the supervisory board, issued an ultimatum demanding that Blume explain himself to the company’s staff. Like other major German corporations, VW operates under a co-determination system involving worker representatives, designed to foster long-term consensus.
Union leaders wrote to employees blaming management for stoking fears of layoffs and demanded that Blume and his team answer more than 80 questions explaining the restructuring plan by Friday.
When he failed to meet the request, the works council distributed a special edition of its newsletter to staff on Saturday, stating that Blume would have to answer directly to employees at meetings to be held after the summer break.
There has already been “a massive loss of trust” in Blume, who, upon taking office, presented himself as someone who wanted to do the job “for the people,” the council wrote.
“He certainly won initial goodwill from much of the workforce with that stance,” it added. “But by now, practically none of that remains.”
The combative comments mark a clear shift in tone. Blume, a VW career employee with over 30 years at the company, had largely been spared the fierce attacks that union leaders leveled against his predecessor, Herbert Diess—a former BMW AG executive who was ousted in 2022.
At VW, workers wield even greater influence. The state of Lower Saxony holds a 20% stake, and its two representatives on the supervisory board typically side with the unionists. This often makes it difficult to assert investor interests when key stakeholders negotiate major decisions.
After this initial round of attempted reform, the company may resort to a piecemeal approach, involving targeted cost-cutting measures that could take several months to complete.
Blume “evidently did not deem it necessary, over the course of weeks, to share the essential facts about his future plan with tens of thousands of deeply unsettled—indeed, frightened—employees,” the works council wrote on Saturday.
“For the employee representatives, enough is enough.”
Porsche wants to stop the bleeding and lays off another 6,000 employees...Porsche continues to go through a difficult period, as not only are sales falling, but operating profits are following this cycle of losses, which is visible after this automaker — of which the VW Group owns 75% — declared in 2025 a 93% drop in operating profits, in addition to a 9.5% reduction in revenue and a 10.1% cut in sales. It is up to Michael Leiters(image above), the new CEO who replaced Oliver Blume at the helm of Porsche, to recover the manufacturer that accumulated profits for years on end, but which recently seems to have lost its way.
Leiters took control of the manufacturer that gave us the 911, among other emblematic models, only in January 2026, so everything that is behind is not his responsibility, as at the time he was CEO of McLaren. But even though he inherited many mistakes from the past (with Blume), the first six months of his leadership in 2026 don't exactly give him a merit diploma, with global sales falling 16% from January to June and operating results plummeting 11.6%.
Now, the recipe announced by the new CEO to turn the problem around and get the brand back to good results involves laying off another 6,000 employees, in addition to the 3,900 that Blume dismissed in recent times as CEO, still in 2025. According to Reuters, the layoff plan will be presented to workers next week, with responsibility for the poor results being placed on the additional taxes in the American market and the anemia that plagues the Chinese market. More importantly, the 911 has suffered from the excess of Chinese rivals, mostly electric, which easily surpass it in power and speed, despite a price close to half, a combination of factors that also helps to explain the flight of potential customers.
Leiters' strategy also involves simplifying the range, which can be seen as code to eliminate versions or even models, betting more on vehicles that guarantee higher profit margins, such as the 911. However, the most famous Porsche owes its profit margin to a certain exclusivity stemming from the fact that it sells only about 50,000 units per year, which alone is not enough to "feed" a brand.
Another decision announced by Michael Leiters involves disinvestment in electric vehicles, even the successors to the 718 Cayman and Boxster, models that were already scheduled for launch in 2025, then delayed to 2026 and finally to 2027, until they were abandoned, along with all the money invested.
While the electric 718 has been put on hold, the same cannot be said for another Porsche project, known by the codename K1, a larger SUV than the Cayenne with three rows of seats to provide seven passengers. The future K1 will now be built on the Premium Platform Combustion, designed for V6 and V8 engines, instead of the Scalable Systems Platform mentioned earlier, which is dedicated to electric models.
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