Volkswagen earthquake hits Germany as funding for new battery research cut

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Last week, Volkswagen Group announced that it may have to close two factories in Germany. It also indicated that it may have to end its decades-old “jobs guaranteed” policy, which was designed to guarantee workers a permanent job within the Volkswagen family. The news has shaken the company and was described by some in the German media as an earthquake.

Last weekend, Volkswagen’s board of directors, from chief executive Oliver Blume on down, met with workers at the company’s main plant in Wolfsburg. Ten thousand people packed into the meeting room, waving banners and chanting slogans such as “We are Volkswagen, you are not.” Another 5,000 were outside. According to witnesses (the media were excluded from the room), the noise of the cheers and whistles prevented the bosses from speaking for about 20 minutes. Instead, they remained behind a long table, their faces set and looking slightly embarrassed, the Guardian reported.

“We are running short of about 500,000 cars a year,” VW’s chief financial officer, Arno Antlitz, told the room. That’s the equivalent of two factories. “It’s not about our product or our underperformance. The market simply doesn’t exist anymore,” he said. He gave the company “a year or two” to turn the situation around. Experts estimate the company has about 20,000 more employees than it needs. Oliver Blume told employees that the company was living beyond its means — it had been siphoning off an estimated €1.5 billion a year in cash flow for the past 15 years. Things had to change, he said. Sometimes a kind relative would step in to pay for extras, like a new television. China had been doing that for years, he said.

Daniela Cavallo, head of the works council representing the company’s 120,000 employees in Germany, was unmoved by the decision. “We are the Volkswagen family, and a family leaves no one behind,” she said, promising “fierce resistance” to the company’s austerity measures. “We will not tolerate liquidation,” she said. Strikes were rare in the company’s history but could not be ruled out, she said. “The crisis at Volkswagen is a crisis for Germany,” Cavallo said. “Our plant locations are the engine of entire regions.”

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

Internally, the company has been criticized for failing to capitalize on the opportunities presented by the electric and hybrid car markets. Critics want to know why it didn’t bring an affordable model like the original Beetle to market—one of several “management mistakes” Cavallo cited.

Volkswagen and Pickup

But the real problem is that Europe is producing 2.5 million fewer cars than it did five years ago. The electric car market fell by 69% in August compared with the previous year – not least because of unexpected changes in subsidies in Germany, as noted above. Moreover, every fifth electric car sold in Europe today is produced in China. And Volkswagen’s affordable electric car, which is due to go on sale next year, is not produced in Germany but in Spain. “From a purely economic point of view, there are fewer arguments in favor of production in Germany,” says Helena Weisbert of the Center for Automotive Research in Duisburg.

One of the cornerstones of Volkswagen’s relationship with its workers has been a promise made over the past 30 years that every employee will have a guaranteed job with the company throughout their career. Layoffs, which are common in the industry, are not something Volkswagen has been accustomed to. But that promise now appears to be in jeopardy as the company struggles to adapt to the current market situation. An early sign of a change in attitude came last year when hundreds of temporary workers were laid off rather than hired into full-time positions, which would have made them eligible for a lifetime employment program.

The company has long been a leader in training young apprentices for jobs at Volkswagen, but that program has also been affected. “This is not the same Volkswagen where I started my career,” said Gianna Liu of GJAV, an organization that represents youth apprenticeship programs, at the meeting in Wolfsburg. She said she was concerned about a lack of “future security” or a sense of responsibility toward the younger generation. She accused the company of misleading new recruits about the possibility that the company’s guaranteed 1,000 annual apprenticeships would be cut. “I don’t know this company anymore.”

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. “It is unlikely that any new battery research projects will be launched with the remaining funds,” the Federal Ministry of Education and Research (BMBF) confirmed to Electrive. […] “Since 2025. In the current fiscal year 2024, new incentives in the field of battery research can still be provided, which will continue until 2028. The funds requested for the years 2025 to 2028 are included in the budget.”

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

Ready Meals

Economics is known as a dreary science, but it is actually a very basic science. In any economic analysis, money goes into our pockets and money goes out of our pockets. If there are more money in than money out, that’s good. If there are more money out than money out, that’s bad. Volkswagen is seeing money flow out of its pockets, and it needs to find a way to stop the bleeding. But it’s not alone in this situation. Chinese electric car imports are a big challenge, but that challenge is made possible by massive government support for the Chinese auto industry.

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

Volkswagen isn’t the only manufacturer to see its electric car plans derailed. Volvo once aspired to sell only battery-electric cars by 2030, but has now backed away from those plans. The auto industry as a whole is in turmoil, and VW’s struggles are just one part of a bigger picture. We at CleanTechnica have been saying for years that many of the industry’s biggest names could be facing an existential Kodak moment. By 2030, many of them could join the long list of once-thriving automakers that have gone out of business.

Volkswagen is being shaken by an earthquake, but it is only part of a larger eruption that is destabilizing the traditional global auto industry. Volkswagen employs hundreds of thousands of workers around the world. If it fails, it will send shockwaves through the global economy, seriously crippling Germany politically and economically. The company has only one chance to fix this if it hopes to survive.

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