A Volkswagen “Earthquake” Hits Germany While Funding Cuts For New Battery Research Loom Leave a comment

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Last week, Volkswagen Group let it be known that it might need to shutter two factories in Germany. It also indicated it might need to end the “guaranteed employment” policy it has adhered to for decades that is designed to ensure workers there will always be a job for them within the Volkswagen family. The news has rocked the company and has been described as an earthquake by some in the German media.

Last weekend, the members of the Volkswagen board of directors, from CEO Oliver Blume on down, met with workers at the company’s main factory in Wolfsburg. 10,000 packed the meeting hall, where they unfurled banners and chanted slogans such as “We’re Volkswagen, you are not.” Another 5,000 were outside. For about 20 minutes, according to eyewitnesses (media were excluded from the hall), the din from the chants and whistles prevented the bosses from speaking. Instead, they stayed behind a long table, stony-faced, looking a little embarrassed, The Guardian reports.

“We are short around 500,000 car sales a year,” Volkswagen CFO Arno Antlitz told the hall. That is the equivalent of production from two factories. “It’s not to do with our product or poor performance. The market is simply not there any more.” He gave the company “one or two years” to turn the situation around. Experts estimate that the company has about 20,000 employees too many. Oliver Blume told the employees the company had been living beyond its means — it has been drawing an estimated €1.5 billion annually from its cashflow for the past 15 years. Things will have to change, he said. Sometimes there is a kindly relative who will step in to pay for extras, such as a new television. China, he said, has been fulfilling that role for years

Daniela Cavallo, head of the works council representing the company’s 120,000 employees in Germany, was unmoved. “We are the Volkswagen family, and a family leaves no one behind,” she said, and promised “bitter resistance” to the company’s austerity mandate. “We will not tolerate being liquidated.” Strikes are rare in the company’s history but cannot be ruled out, she added. “A crisis at Volkswagen is a crisis for Germany. Our factory locations are the drivers of whole regions,” Cavallo said.

Carsten Brzeski, head economist at the Dutch global financial institution ING, told German media, “The car industry remains the most important sector in Germany and Volkswagen is the alpha male. When the giant wobbles, then everything wobbles.” Some blame the government for the company’s predicament, saying it has pushed a green agenda which has led to a slump in domestic car sales and a rise in energy prices. They say it has failed to deliver on promises to slash bureaucracy and that it hurt German manufacturers of electric cars like Volkswagen by abruptly halting a subsidy program at the end of last year.

Internally, there is much criticism of the company’s failure to grasp the opportunities presented by the electric and hybrid car markets. Those critics want to know why it has not brought an affordable model like the original Beetle to market — one of the many “mistakes of management” listed by Cavallo.

Volkswagen And Peak Car

The elephant in the room, however, is that in Europe, 2.5 million fewer cars are being manufactured than five years ago. The market for electric cars slumped by 69% in August compared with a year earlier — especially, as noted above, because of sudden unexpected subsidy changes in Germany. In addition, every fifth electric vehicle sold in Europe today is produced in China. An affordable entry level electric car from Volkswagen that is due to go on sale next year is being produced not in Germany but in Spain. “From a purely economic point of view, there are ever fewer arguments in favor of producing in Germany,” said Helena Wisbert from the Center for Automotive Research in Duisburg.

One of the cornerstones of the relationship between Volkswagen and its workers has been a promise by the company for the past 30 years that every employee would have a guaranteed job with the company during their working career. Layoffs, which are common in the industry, are not the Volkswagen way. But now it appears that promise is in danger as the company struggles to adapt to the current market situation. An early sign of the change in attitude came last year when hundreds of temporary workers were let go instead of being placed in full time jobs, which would have made them eligible for that lifetime employment program.

The company has long been a leader in training young apprentices for jobs at Volkswagen, but that program has been impacted as well. At the meeting in Wolfsburg, Gianna Leo of GJAV, an organisation representing youth training programs, said: “This is no longer the same VW where I started my working life.” She said she was concerned about the lack of Zukunftssicherheit — “future security” — or sense of responsibility towards the younger generation. She accused the company of misleading new recruits over the prospect of cuts to the company’s guaranteed annual 1,000 training opportunities. “I don’t recognize this company any more.”

Germany Scales Back Battery Research

In a related development, the German government last week cut funding for new battery research. Existing research programs will not be affected. According to the Competence Network for Lithium Ion Batteries (KLIB), the cuts will seriously threaten the competitiveness of German industries. The Federal Ministry of Education and Research (BMBF) confirmed to Electrive “it is unlikely that any new battery research projects can be launched with the remaining funds […] from 2025. In the current 2024 budget year, new incentives can still be provided in the field of battery research, which will continue until 2028. The funds required for the years 2025 to 2028 are included in the budget.”

KLIB fears the cancellation of the research and development pipeline will dry up the source of innovations that lead to industrial applications. Hildegard Müller, President of the German Association of the Automotive Industry (VDA), told Electrive, “While the German government was still talking about making Germany a center for battery cells a year ago, research funding will be completely eliminated in the future.” The planned cuts are “exemplary of the contradiction between the goals set and the actual policy.” Martin Winter from the MEET Battery Research Center at the University of Münster added, “All other countries are ramping up their funding because it is now a matter of implementation.”

The Takeaway

Economics is known as the dismal science, but it is really quite basic. In any economic analysis there are gozzintas — monetary units that go into our pockets — and gozzoutas — monetary units that flow out of our pockets. If there are more gozzintas than there are gozzoutas, that’s good. If there are more gozzoutas then gozzintas, that’s bad. Volkswagen is currently experiencing an outflow of gozzoutas and needs to find a way to stop the bleeding. But it is not solely responsible for the current situation. Yes, Chinese electric car imports are a challenge, but that challenge is made possible by massive government support for its car industry.

No other nation juices its domestic manufacturing sector the way China does. Whether that is a good thing or not depends on your point of view. But, clearly, if China is pouring money and resources into battery research, Germany and other industrialized nations must do the same or face being wiped out by China. Tariff barriers may stem the tide for a while, but if countries like Germany do not craft a coherent strategy to make themselves competitive, all the tariffs in the world won’t save them.

Volkswagen is not the only manufacturer to see its electric car plans disrupted. Volvo once aspired to sell only battery electric cars by 2030, but now has pulled back on those plans. The car industry in general is in turmoil, Volkswagen’s struggles are just one part of a larger picture. We at CleanTechnica have been saying for years that several big names in the industry may be facing an existential Kodak moment. By 2030, several of them may have joined the long list of once flourishing car companies that have gone out of business.

There is an earthquake happening at Volkswagen, but it is just part of a larger eruption that is destabilizing the traditional car industry globally. Volkswagen employs hundreds of thousands around the world. If it should fail, that would send shock waves throughout the world economy and seriously disrupt Germany politically and economically. The company has one chance to get this right if it hopes to survive.