According to sources, Volkswagen and its Chinese partner SAIC Group are planning to close a factory in China and may potentially shut down more factories to address the slowdown in demand for gasoline engine vehicles.
Insiders told Bloomberg that the joint venture between Volkswagen and SAIC Group, which has a 40-year history, is preparing to close a factory in Nanjing as soon as next year. The factory produces Volkswagen Passat and Skoda cars with an annual capacity of up to 360,000 vehicles.
Reuters reported that Volkswagen and its partner SAIC Group will gradually shift the production of the Passat series cars from the Nanjing factory to a factory in Jiangsu province. However, the source added that the joint venture has not set a clear relocation timeline and has not decided whether to completely shut down the factory or sell it.
At its Shanghai base, SAIC Volkswagen stopped production at a factory that had been operating since the mid-1980s two years ago. Sources told Bloomberg that the output of the second factory has decreased and it may also be shut down or restructured.
Volkswagen confirmed that its partner is conducting a strategic review of the Volkswagen Skoda brand after a sharp drop in sales, highlighting the challenges the company faces in China. Insiders reported that a factory in Ningbo, Zhejiang, which produces multiple Skoda models, has been idle for several months and is currently considering closure.
Volkswagen China responded to Bloomberg in an email saying, “All factories of SAIC Volkswagen are operating normally according to market demand and our forecasts. As the focus shifts to smart electric vehicles, we are also gradually transforming our car production and component factories.”
The unprecedented decline of Volkswagen in the Chinese market is attributed to weak consumer demand and a rapid shift toward electric vehicles, resulting in overcapacity in traditional car manufacturing for the German manufacturer.
Data released by the China Association of Automobile Manufacturers on September 10 showed that both production and sales of Chinese automobiles in August this year decreased compared to the previous year. This marks the third consecutive month of decline in production and sales. Car sales in China in August dropped by 10.7% to 1.942 million vehicles.
The production output of Volkswagen’s 39 factories in China last year was still over a quarter lower than the peak before the pandemic. In 2023, the revenue share of Volkswagen’s joint ventures in China decreased by 20%, almost halving from its peak in 2015.
Earlier this year, Reuters reported that China’s SAIC Group is planning to lay off thousands of employees in its joint ventures SAIC Volkswagen, SAIC General Motors, and its electric vehicle division.
Insiders told Reuters that the state-owned automaker hopes to cut 30% of employees at SAIC General Motors, 10% at SAIC Volkswagen, and over half of the employees at Rising Auto.
Large-scale layoffs are rare in Chinese state-owned enterprises, but the current economic downturn and intensifying price wars in the automotive industry are prompting such measures. The layoff plans reflect that SAIC Group and its foreign partners are quickly being replaced by Tesla and BYD in market share.