Volkswagen capacity crisis note

Clouds gather over Volkswagen's Wolfsburg facility

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• Volkswagen brand's current European annual run-rate around is currently running at just under 0.5 mn units below pre-Covid levels or the equivalent of two production sites.

• The total regional market is witnessing a run-rate of around 3 million units below the pre-Covid 14-15 mn level

• VW's market share remains stable at above 10%; however, its failure to adapt to a slower market has caused over-capacity and underutilisation while others that have reacted, such as Ford with Saarloius, are potentially in a better place. Meanwhile, Stellantis are boosting utilisation with Chinese JV partner LeapMotors assembly in Poland. VW has told us they aren't prepared to open its European facilities to its Chinese JV partners in order to improve utilisation, which would prevent plant cuts. 

• Are VW's woes also linked to China? Possibly... With a Chinese ICE burn, are VW's scaling benefits for ICE components vanishing far faster than expected? A slow de-risking strategy across to their underperforming North American region, helping keep some of those key scaling benefits, has so far proven unfruitful.

• Is this talk of plant cuts designed to torpedo the next round of pay discussions due to take place imminently? Possibly... and puts the ball in the union's court. 

• Six per cent of the West European market has disappeared to new market entrants since pre-Covid, leading to a smaller pie with a battle royale situation for market share.

• Shifting some production capacity (Transporter) to the Ford Otosan site in Turkey also doesn't help the underutilisation issue.◼︎︎

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*Western Europe 18 Markets: EU Member States prior to the 2004 enlargement plus EFTA markets Norway, Switzerland, Iceland, plus UK