Volkswagen has had a difficult year. Unrelenting competitive pressure in the compact car segment, particularly from China, a lagging realisation of a top selling product in the e-car segment and complicated production conditions in the home market of Germany are not only causing concern for the Group's management. After all, the car manufacturer from Wolfsburg is an iconic German brand and an important economic factor for the country. However, things have been changing since the beginning of 2025. Can VW succeed in turning things around despite everything?
Last year, there was certainly no shortage of voices proclaiming the decline of the German car industry. There were plenty of reasons for this. In its more than 80-year history, radical measures such as plant closures, mass redundancies and financial rescue programmes have been discussed.
While the Chinese competition took concrete steps towards a fully electrified vehicle range at an early stage, VW was more hesitant. New electric models came onto the market more slowly than those of the competition and existing models did not achieve the forecast sales figures. Globally, Volkswagen reported that it sold 2.3 per cent fewer vehicles in 2024 than in 2023 (Manager Magazin, 14.01.2025).
Weak demand in China and tough competition in the e-car market
In China, the Group's largest sales market, an increasingly harsh wind blew against the Group last year, with demand for vehicles falling sharply. Around 2.2 million fewer vehicles were sold in China in 2024 than in the previous year. This corresponds to a decline of around 8.3 per cent (NDR, 09.01.2025). How did this happen? If you take a closer look at the competitive situation in China, things become clearer. Chinese manufacturers have succeeded in ridding themselves of the image of poor quality and performance that their models with combustion engines in particular have suffered from for years. Domestic car brands such as BYD, Nio and Xiaomi now not only offer their models at a lower price, but also score points with more innovative functions, more user-friendly and reliable software and more powerful batteries.
While the spread of electromobility in Europe and North America is only making slow progress, the proportion of electric cars on China's roads continues to grow relentlessly. According to forecasts by the Financial Times, more electric vehicles could be sold in China than combustion engines for the first time in 2025. VW is finding it increasingly difficult to bring a competitive and competitively priced model onto the market. The ID.3 model, VW's first model developed purely as an electric car, struggled for a long time with weak demand due to teething troubles such as software problems, among other things, as a result of which VW had to sharply reduce the price of the model in the Chinese market, which put further pressure on the profit margin.
Production challenges and internal restructuring
The Wolfsburg-based company is also in rough waters in its home market of Germany. Like many German industrial companies, Volkswagen is struggling with the after-effects of the energy crisis. However, the Group is also facing home-grown difficulties such as high production costs and inefficiency issues. The Group management is trying to counteract the excessive costs with steps to reduce overcapacity. Measures that were previously considered unthinkable, such as the closure of production facilities in Germany and the associated redundancies, and thus the cancellation of the job security that has been in place since 1994, are being considered. However, this leads to massive protests from trade unions.
Political influences and strategic realignment
As a result of these circumstances, the Volkswagen Group is increasingly coming under a political spotlight. The prospective new Chancellor of Germany, Friedrich Merz, criticised as early as September last year that the Group had followed the wishes of its state shareholders too closely when it came to switching to electromobility. The CDU chairman noted that Volkswagen had ignored the fact that neither the necessary infrastructure nor a competitive range of vehicles existed.
With the CDU's election victory, German car manufacturers are increasingly considering a change of strategy. Originally, the Volkswagen Group planned to no longer offer vehicles with combustion engines in Europe as of 2033. However, it is now becoming increasingly apparent that the Group could produce its bestsellers Golf, Tiguan and T-Roc for longer than planned. The decision could be made as part of an investment planning round, which is due to take place at the beginning of March 2025 (Handelsblatt, 14 February 2025). Industry experts note that this measure may not be a sustainable solution given the unchanged trend towards e-mobility in the key Chinese market.
Could a turnaround be on the horizon?
The Volkswagen Group's share price has risen by 20 per cent since the beginning of 2025 (as of 26 February 2025). This increase could be due to the expectation of a strategic realignment of the Group as a result of political change in Germany. Nevertheless, Volkswagen faces the challenge of repositioning itself in a fast-moving car market and not missing out on the competition. Extending the production of combustion models could give the Group stability in the short term so that it can systematically revise its electric car range and win back lost market share with new, competitive models. The next few months could show which measures the Group management could focus on to put Volkswagen back on the right track.