As per Reuters, Volkswagen Group is set to slash around 19,000 jobs in Germany this year. CEO Oliver Blume is expected to explicitly communicate this to investors at the annual general meeting on June 18, along with establishing a binding target of over 28,000 cumulative layoffs by 2030.

This move isn't Volkswagen's initial foray into job cuts. In December 2024, Volkswagen reached a pact with German trade unions to trim 35,000 positions in Germany by 2030, mainly impacting the Volkswagen brand. Subsequently, Volkswagen initiated factory closures. The Dresden plant halted production and shut down entirely by the end of 2025, transforming into an innovation hub for a university. Four other factories—Emden, Zwickau, Hanover, and Audi's Neckarsulm site—are also at risk of closure, affecting approximately 40,000 employees. If these closures materialize, Volkswagen's annual production capacity in Germany will plummet by roughly 750,000 units.

The primary catalyst for this widespread systemic contraction is the sharp decline in profits. In 2025, Volkswagen Group's global deliveries reached 2.0489 million units, a 4% year-on-year decrease. China, Volkswagen's largest single market for four decades, witnessed an approximately 8% drop in sales to 2.69 million units.

In the first quarter of this year, Volkswagen Group's sales dipped another 4% to 2.05 million units. Chinese market sales took a significant hit, plummeting by 20%. A sudden 20% sales decline in a single market dealt a severe blow to Volkswagen's profitability. Coupled with tariffs eroding approximately €5 billion in operating profit annually, the group's performance continued to deteriorate under multiple pressures.

In 2025, Volkswagen Group's operating profit tumbled to approximately €8.9 billion, a more than 50% year-on-year decrease. The operating profit margin stood at a mere 2.8% during the same period. Although it rebounded slightly in the first quarter of 2026, it still declined by 14.3% year-on-year.

Now, let's delve into costs. Reportedly, Volkswagen's pure factory cost per vehicle in Europe has surpassed €4,000, significantly exceeding the target of €3,000. Blume previously acknowledged that Germany's high energy costs and overly burdensome regulations render production costs in the German domestic market relatively high, especially labor costs. "We must offset this disadvantage by enhancing production efficiency," he stated.

Oliver Blume's remarks suggest that as of 2025, Volkswagen has reduced production costs at its German factories by over 20%. However, this isn't sufficient. With the phase-out of electric vehicle subsidies in Europe, persistently high transformation investments, and the long-term drag from software subsidiary CARIAD, profits are under pressure from both ends, leaving cost-cutting as the sole viable option.

In April this year, Volkswagen Group announced it would scale down its global annual production capacity planning from 12 million units to 9 million units, a reduction of 3 million units.

For Volkswagen, this contraction is inevitable. On one hand, the generous profits of the fuel-powered vehicle era are no longer sufficient to shoulder the dual burdens of electric vehicle R&D and overcapacity. The profit margin of pure electric models is currently only 70-80% of that of fuel vehicles, creating a persistent profitability gap during the transformation. On the other hand, amid the triple shocks of fragmented global demand, reshaped energy structures, and the rise of China's supply chain, the past model built on high-end manufacturing, economies of scale, and export dividends is beginning to exhibit structural mismatches.

To "rescue itself," Volkswagen is exploring unconventional avenues. In late March, the Financial Times, citing sources close to the matter, reported that Volkswagen is in discussions with Israeli defense giant Rafael to repurpose its Osnabrück factory from automotive production to manufacturing components for missile defense systems, including heavy truck chassis for launch vehicles, launch platforms, and supporting generator sets. The two sides are currently engaged in in-depth negotiations.

Furthermore, Reuters reported in May that Volkswagen Group is contemplating producing models for the Chinese market in Europe or opening up part of its European factory capacity to Chinese partners to enhance utilization rates.