Recently, insiders revealed that Volkswagen's board of directors has formulated a plan to seek to reduce costs by approximately €4 billion (approximately RMB 30.7 billion) for its underperforming passenger car brands. The cost reduction proposals include a 10% pay cut for all employees, suspension of wage increases in 2025 and 2026, and plans to close some German factories.

Data shows that Volkswagen sold 2.176 million vehicles globally in the third quarter, a year-on-year decrease of 7.1%. Sales of battery electric vehicles (BEVs) in the third quarter were 189,000, a year-on-year decrease of 9.8%. In the first three quarters of this year, Volkswagen Group delivered 6,524,300 vehicles globally, a decrease of 2.8% year-on-year. As Volkswagen's largest single market globally, China sold 711,500 vehicles in the third quarter, a significant year-on-year decrease of 15%. In the first three quarters, China delivered 2,056,600 vehicles, a year-on-year decrease of 10.2%.

The decline in the Chinese market far exceeds Volkswagen Group's overall performance. Therefore, improving its business performance in the Chinese market has become a top priority.

With declining sales and shrinking profits, it is understandable that Volkswagen has adopted a series of cost-cutting and layoff measures. In 2024, automakers' cost reduction and efficiency enhancement is not a new topic.

Tesla also laid off and reduced salaries in the first half of the year, renegotiated supply chain prices, and domestic new forces such as Lixiang and NIO also embarked on vigorous cost reduction and efficiency enhancement initiatives for a period at the end of last year and the beginning of this year.

This also illustrates a fact that under the backdrop of the new energy transition, both traditional giants and emerging giants face their own set of challenges and significant operational pressures.

Cost reduction and efficiency enhancement are not new

Tesla's third-quarter financial report shows that the company's revenue reached $25.182 billion, an 8% year-on-year increase, and net income attributable to common shareholders reached $2.167 billion, a 17% year-on-year increase, exceeding market expectations. In the third quarter, the Chinese market contributed significantly to Tesla's revenue growth. Data shows that Tesla sold 249,135 electric vehicles produced in China in the third quarter, an increase of 21.09% month-on-month.

Despite Tesla's strong third-quarter performance, it experienced a "rough patch" in the first half of the year. In the first half of 2024, Tesla's revenue was $46.8 billion, a year-on-year decrease of 3%, and net income was $2.6 billion, a significant decrease from the previous year; in the first half, Tesla sold 426,600 vehicles in China, a year-on-year decrease of 10.47%.

To turn things around, Tesla conducted large-scale layoffs involving nearly 20,000 employees. At the same time, it strengthened controls over research and development, sales, and administrative expenses, with decreases of 10.5% and 5.3%, respectively; in addition, Tesla renegotiated raw material procurement contracts, reducing costs for batteries and other raw materials, and bringing the cost of goods sold (COGS) per vehicle in the third quarter to an all-time low of approximately $35,100, a decrease of about $2,000 from the third quarter of last year.

Through a series of operations, Tesla successfully achieved cost reductions, laying the foundation for its strong third-quarter performance.

As the most competitive brands among the new forces, Lixiang and NIO have also implemented cost reduction and efficiency enhancement measures.

In 2023, Lixiang had a bumper year with total revenue of RMB 123.85 billion and net profit of RMB 11.81 billion, becoming the first new force automaker in China to achieve annual profitability. Entering 2024, the situation changed, with Lixiang's first-quarter revenue and net profit falling significantly month-on-month, and its operating profit turning into a loss of RMB 585 million.

Subsequently, Lixiang conducted a series of operations, including adjusting its organizational structure. In April, Lixiang adjusted several departments, including branding, product, business, strategy, and supply chain, involving more than 500 people. Notably, Lixiang merged the functions of its retail department and delivery headquarters into a sales department, avoiding internal friction.

After these operations, results were quickly seen, with Lixiang delivering over 50,000 vehicles in September, setting a delivery record.

At the end of 2023, NIO began merging duplicative departments and positions, reforming inefficient internal workflows and division of labor, eliminating inefficient positions, and improving resource efficiency. It postponed and reduced investments in projects that would not improve the company's financial performance within three years.

Previously, NIO held more than 30 analysis and discussion meetings on its two-year business plan to determine the goals, key success factors, priorities, action plans, and required resources for each business over the next two years, and to identify opportunities for organizational optimization and cost reduction and efficiency enhancement.

Thanks to these adjustments, NIO has ensured rapid sales growth in 2024. From January to September 2024, NIO delivered a total of 149,281 new vehicles, a year-on-year increase of 35.7%. Notably, NIO has delivered over 20,000 vehicles for five consecutive months. It is foreseeable that NIO's third-quarter financial report will undoubtedly impress the market.

This shows that both cost control and organizational structure adjustments have become routine operations in the current upheaval of the new energy vehicle industry. It can only be said that Volkswagen was late in implementing cost reductions and it would have been better if they had acted sooner.

Breaking through the Chinese market with all its might

Objectively speaking, it is already quite challenging for Volkswagen, a supergiant that has been operating for decades, to initiate cost reduction measures.

In previous years, Herbert Diess's push for Volkswagen's electrification transformation encountered various obstacles. The heavily promoted product ID.3 encountered "absolutely disastrous" software issues during mass production and delivery, and sales of the ID series were also unsatisfactory, which foreshadowed Diess's subsequent departure.

Given the significant changes already underway in new business lines, layoffs and pay cuts are undoubtedly major events that will reshape the company. It is impossible to predict how much of the €4 billion cost reduction plan will ultimately be implemented and how many people will have to sacrifice their careers in the process.

Ultimately, what goes on at Volkswagen headquarters is too far removed from us. We are more concerned with Volkswagen's every move in the Chinese market.

It should be said that Volkswagen's prospects in the Chinese market are quite promising.

First and foremost, its cooperation with Xpeng has become closer. On July 22, Volkswagen and Xpeng officially signed a joint development agreement for strategic cooperation on electronic and electrical architecture technology. To date, Xpeng and Volkswagen Group have signed three agreements this year.

As part of this cooperation, Volkswagen and Xpeng have established joint development teams in Hefei and Guangzhou, and the first model equipped with the jointly developed electronic and electrical architecture is expected to enter mass production within 24 months.

To this end, Volkswagen has sent hundreds of engineers to work at Xpeng's headquarters in Guangzhou.

Both the northern and southern Volkswagen operations are actively responding to the new changes in the Chinese automotive market. Last July, SAIC Volkswagen secured approval for its self-developed PHEV project. In October, then-General Manager of SAIC Volkswagen Jia Jianxu revealed that long-range PHEV models were expected to be launched in 2025, with SAIC Volkswagen undertaking 75% of the product development work. Moreover, the new models will introduce autonomous driving and smart cockpits.

In June this year, Volkswagen Group, SAIC Motor, Volkswagen (China) Investment Co., Ltd., Volkswagen (China) Technology Co., Ltd., and SAIC Volkswagen signed multiple technical cooperation agreements related to new product projects at SAIC Volkswagen, including the development of three plug-in hybrid models and two battery electric models in China. The newly developed models are expected to be launched successively from 2026 onwards.

In January 2024, Nie Qiang, Deputy General Manager of FAW-Volkswagen (Business), revealed that FAW-Volkswagen was independently developing a new electric vehicle model, with the technical plan basically confirmed and the independently developed hybrid system about to be installed.

In September, it was reported that FAW-Volkswagen would launch three new plug-in hybrid products, two of which are SUV models and will be produced at the FAW-Volkswagen Tianjin plant.

Furthermore, FAW-Volkswagen's Audi and Jetta brands both have clear plans for plug-in hybrid models. Among them, the Jetta brand plans to launch a new hybrid model in 2026. According to Jetta's product plan, it will introduce a new A-class battery electric sedan in 2025, followed by five new models, including battery electric and plug-in hybrid vehicles.

As the first SUV model based on the PPC luxury gasoline vehicle platform, the all-new Audi Q5 is about to undergo its third-generation upgrade. Here, we boldly speculate that the Audi Q5L may also introduce a plug-in hybrid model.

We are optimistic that despite Volkswagen's layoffs and cost reduction measures in the Chinese market, its products are becoming more localized, and it dares to delegate power, adopting a more proactive strategy and blazing a new development path.

People's Car Reviews

During the transformation of large enterprises, external forces are much easier to disrupt than endogenous self-transformation.

From the perspective of the new energy transition, the Chinese market is at the forefront of change. Volkswagen, which must adapt to local conditions and change its previous business model, deserves recognition.