Employees work on the Volkswagen assembly line in Dresden, Germany in May, 2025.JENS SCHLUETER/AFP/Getty Images
If there was one German company that could be counted on for endless growth, global prestige and nurturing employees – to the point that wealthy towns were built around its factories – it was Volkswagen VWAGY.
Only once in its 89-year history has Europe’s largest car maker shut a plant. That happened last year, when it closed its Dresden assembly line, which made electric vehicles. Even then, not a lot of jobs vanished; the site was reborn as a research hub focused on artificial intelligence, robotics and chip design.
Today, VW seems in near free-fall. Last week, German media said the company plans to shed 100,000 employees, a sixth of its work force, and close four factories – a wholesale retreat. (The reports were not denied or confirmed by VW). There is ample speculation that entire divisions, possibly Lamborghini, will be sold or spun off. The company just sold its majority stake in its Everllence ship engine business for £7.4-billion.
The share price tells the sorry story. VW, whose brands include Audi, Porsche, Škoda and Ducati, has lost 21 per cent of its market value in the past year. Over the past five years, it has lost 75 per cent. Today, Tesla, which makes a fraction of the number of cars, is worth 38 times more than VW.
Volkswagen weighs cutting up to 100,000 jobs and closing four German plants, sources say
Oliver Blume, the chief executive of VW, earlier this year blamed “wars, geopolitical tensions, trade barriers, stricter regulations and intense competition” for his company’s fall from grace. A radical overhaul was the only option.
Automotive pundits everywhere were quick to place much of the blame on Chinese competitors, especially Chinese electric vehicles, for VW’s retreat. Certainly, their rising market share is part of the problem. But VW’s woes, and those of rivals such as Stellantis (Fiat, Peugeot, Dodge) began years ago, well before the Chinese machines popped into European showrooms.
Simply put, European car production and demand have plummeted as prices moved in the opposite direction. This is Econ 101 – the supply curve is meeting the demand curve at much lower volumes. The rising cost of meeting safety regulations and the electronics that go with them (lane-change warning, automatic emergency braking, among other gadgets) and the soaring price of raw materials such as aluminum, copper and steel can take much of the blame.
But so can the European car makers’ penchant to make ugly, bloated, tech-laden rolling monsters that appeal to the wealthy instead of the masses. All that extra weight and power so you can accelerate to the stop light faster than the old, cheapo Fiat Panda next to you comes at a cost. Europe has lost the art of making stylish, practical cars that don’t bust the bank account. It also got into the EV game too late.
VW, whose brands include Audi, Porsche, Škoda and Ducati, has lost 21 per cent of its market value in the past year.Focke Strangmann/Getty Images
In the European Union, car production in recent years peaked in 2017, at 14.9 million units, according to ACEA, the European Automobile Manufacturers’ Association. In 2025, the number was 11.5 million, though that was up by a 15 per cent from 2021’s low of 10 million. At the same time, prices have climbed significantly (in Rome, where I live, it is rare to meet young adults who own cars; they tend to buy small motorcycles or tiny “quadricycle” EVs, which are not classified as regular cars).
Jato, an auto research and data site, says the average European retail prices for subcompact and compact cars, including SUVs, climbed by a third between 2018 and 2024. That translates into a price increase of more than £10,000 for a small SUV. No wonder production and sales are in the tank.
Output in Italy, in particular, has collapsed. The country that made more than two million cars a year in the late 1980s and early 1990s, last year made only 238,000 – less than Portugal.
Volkswagen’s decline is not unique, of course. Other European car makers are cutting back as capital-killing overcapacity takes its toll on profits. Stellantis lost £22.3-billion last year, suspended its dividend and cut back its EV rollout. It has eliminated thousands of jobs in Italy and elsewhere. Nissan is cutting production at its massive Sunderland plant in England by half and is eliminating 10 per cent of its European jobs. Renault is letting 800 engineers go in France.
The pain is bound to intensify among the European car companies for three reasons.
The first is that the unions will fight any jobs losses, especially in the case of VW, where the German state of Lower Saxony holds 20 per cent of Volkswagen’s voting power. The second is that the car companies are losing market share and profits in China as Chinese cars, especially EVs, move up the value chain and offer unbeatable prices. The third is that Chinese cars are on the verge of grabbing far more market share in Europe too. Chinese cars accounted for 7 per cent of EU sales last year, up from 5 per cent in 2024. The upward trend is firmly in place.
Whether the European car companies, especially VW, can cut costs fast enough so they can make less expensive cars that appeal to price-conscious buyers is far from certain. Their failure to do so would hand an open invitation to the Chinese brands to take over the market.
Editor’s note: This article has been updated to correct the years covered by Jato’s analysis of European retail prices.