Volkswagen is implementing a series of strategic measures aimed at navigating a complex and challenging business environment.
In addition to planning layoffs at its Cariad software unit, the German automaker is bracing for a year of flat profitability, grappling with muted demand in Europe, escalating trade tensions, and intense competition in the electric vehicle (EV) market.
According to a report in the Handelsblatt business daily, Volkswagen plans to lay off 1,600 staff members at its Cariad software division by the end of the year.
These layoffs, impacting nearly 30% of Cariad’s total workforce of 5,900 employees, are to be implemented primarily through redundancy programmes, the report noted. Handelsblatt said the company confirmed this information.
In an emailed statement to Reuters, Volkswagen confirmed the workforce reduction, attributing the move to a “transformation plan” for Cariad agreed in 2023.
“Last year, we already made the organisation more efficient as an internal software solutions developer with higher in-house performance and are now also adjusting the number of employees accordingly,” a spokesperson for the company told Reuters.
Economic headwinds take hold
The job cuts at Cariad are just one piece of a larger strategic puzzle, as Volkswagen navigates broader economic headwinds.
The company expects profitability to remain roughly flat this year, projecting an operating margin of 5.5% to 6.5% in 2025, compared with 5.9% last year.
While the company sees revenue increasing by as much as 5%, these gains may be offset by external pressures.
“The outlook reflects ‘the global economic challenges and the profound changes’ affecting the auto industry,” Bloomberg reported, quoting Chief Financial Officer Arno Antlitz, acknowledging the significant hurdles the company faces.
Volkswagen is bracing for another tricky year as rising trade tensions risk hurting car sales.
The group is highly exposed to planned US tariffs on Mexico and Canada, two key manufacturing and trade partners, while the looming threat of duties on European cars poses a significant risk to export-dependent brands like Porsche.
Challenges in key markets: Europe and China
Beyond the trade war concerns, Volkswagen is grappling with challenges in its core markets.
The European Union recently granted automakers more time to meet stricter pollution targets – allowing VW to sell more of its profitable gasoline cars this year – but overall sales in the region remain lackluster as customers feel the squeeze from higher living costs.
The company is planning several budget EVs to woo Europe’s squeezed consumers, but those won’t start arriving until next year.
Volkswagen is also under pressure to stabilize its performance in China, where it has been steadily losing market share to domestic manufacturers like BYD Co. that have rapidly shifted their focus to electric models.
Cost cutting measures
In response to these challenges, Chief Executive Officer Oliver Blume is targeting cost cuts at both Porsche and Audi.
He has also struck a deal with unions to restructure the group’s namesake brand.
These efforts aim to enhance efficiency and improve profitability as the company navigates a period of significant transformation.
Volkswagen’s decision to reduce its workforce at Cariad and implement broader cost-cutting measures reflects a proactive approach to addressing the challenges facing the automotive industry.
By streamlining operations, managing expenses, and focusing on key strategic priorities, the company hopes to weather the current economic storm and position itself for sustainable growth in the years to come.
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