Volkswagen has reported a 60% drop in profits due to weak sales in China, underscoring the challenges the automaker faces as it prepares to close a factory in Germany for the first time.
Germany’s biggest carmaker has told workers it is considering closing three factories that supply the main Volkswagen brand in the domestic market and cutting staff salaries, leaving 120,000 employees in Germany alone. There is a growing possibility that the battle with the labor unions representing the people will be prolonged.
Automakers around the world are struggling with weak demand for new cars due to rising interest rates, but some automakers, including VW’s German rivals BMW and Mercedes-Benz, are facing weaker demand, especially in China. It is reported that they are doing so. British sports car brand Aston Martin also acknowledged on Wednesday that a “weak macroeconomic environment in China” was holding back its results.
Older manufacturers are also having to shell out big investments to switch from gasoline and diesel production to electric vehicles, but sales growth for battery electric vehicles has slowed in some major markets. At the same time, new Chinese electric vehicle manufacturers are trying to gain market share.
Volkswagen remains profitable, but pre-tax profits in the July-September period fell by around 60% to 2.4 billion euros (2 billion pounds) from 5.8 billion euros in the same period last year.
The company announced that sales in China fell 12% in the first nine months of 2024. Sales in Western Europe were down 1% over the same period.
VW Chief Financial Officer Arno Antlitz said the results “reflect the challenging market environment” and “underscore the importance of achieving the performance program we have launched across the group.” “There is,” he added.
He said: “The Volkswagen brand reported an operating profit margin of just 2% after nine months, highlighting the urgent need for significant cost reductions and efficiency improvements. ”
Volkswagen also released a statement on Wednesday from chief negotiator Arne Meiswinkel, saying “the situation is deteriorating” ahead of negotiations with the union. He also highlighted the low profit margins of the VW brand.
“This is not enough to invest in our future,” he said. “Only successful businesses can offer stable jobs. We need to increase efficiency and reduce costs.”
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Sales of the company’s electric vehicles fell 4.7% year-on-year, which the company blamed on “industry-wide purchasing restraints.” However, much of the decline is due to Germany cutting subsidies for electric cars at the beginning of the year.
Aston Martin reported a pre-tax loss of £12.2m in the third quarter, down from £118m in the same period last year. However, it lost £229m over the course of 2024, with net debt increasing by nearly £500m to £1.2bn in the quarter.
Shares in the British carmaker rose 2.4% in early trading, but were still 30% below where they were last month, when the company warned of tight profit margins. The company blamed parts delays and poor sales in China.
