For an extended period, the automotive industry held a common belief: the global center of car manufacturing was in Germany, and Volkswagen was the most significant symbol of this hub.
At its peak, Volkswagen sold over 10 million vehicles annually, boasting a portfolio of more than ten brands including Volkswagen, Audi, Porsche, Skoda, Bentley, and Lamborghini, with a vast manufacturing network spread across the globe.
However, the situation for this German giant is now changing.
Recent reports indicate that Volkswagen is planning to reduce its global production capacity from approximately 10 million to around 9 million vehicles, a cut of nearly 10%.
Volkswagen's CEO, Oliver Blume, is not planning to persist with the current scale. His approach to the capacity issue involves considering bringing Chinese companies into its factories to absorb the excess production.
A month ago, it was reported that XPeng was in talks with Volkswagen to potentially purchase a vehicle assembly plant in Germany.
Previously, Volkswagen extended an olive branch to XPeng for joint development of electric vehicle models for the Chinese market. Meanwhile, as XPeng's sales in Europe gain momentum, it currently relies on contract manufacturing by Magna Steyr in Austria, showing a clear appetite to expand local production capacity in Europe.
The supply and demand from both sides align perfectly.
Looking back, twenty years ago, the greatest dream for Chinese automakers was to enter Volkswagen's supply chain; a decade ago, they hoped to learn car manufacturing from Volkswagen; and today, Chinese automakers are beginning to have opportunities to take over Volkswagen's factories.
This role reversal itself is a microcosm of the shifting landscape in the global automotive industry.
Volkswagen's problems first emerged in China.
The Chinese market was once Volkswagen's most crucial profit source. Around 2019, the Volkswagen Group sold over 4.2 million vehicles annually in China, accounting for nearly 40% of its global sales. At that time, Chinese consumers viewed Volkswagen as synonymous with quality and reliability. Volkswagen leveraged its scale advantage to replicate its mature global technological systems in the Chinese market, thereby earning profit margins far exceeding those in Europe.
But the new energy era has rewritten the rules. When a Chinese new energy vehicle startup can complete a product generation iteration within two to three years, Volkswagen's traditional development cycle often requires a much longer period.
To catch up with the changes in the Chinese market, Volkswagen has begun actively learning from Chinese companies. Now, this cooperation appears to be extending further into the manufacturing sector. Industry insiders believe that if, in the future, some of Volkswagen's European factories could produce Chinese-branded cars or be taken over and operated by Chinese automakers, it would introduce a new industrial division of labor model to the global automotive manufacturing system historically led by German carmakers.
For Volkswagen, this is a pragmatic choice. Because the most expensive asset in the automotive industry is not technology, but factories. A modern car factory often requires an investment of several billion euros. Once factory utilization rates drop, fixed costs rapidly erode profits.
Data shows that Volkswagen's operating profit margin for the 2025 fiscal year was only 2.8%. According to the company's stated goals, after restructuring is completed, it hopes to restore the operating profit margin to 4% to 5.5% for the 2026 fiscal year, and aims for 8% to 10% in the long term.
Achieving this goal by simply selling more cars is no longer realistic.
Blume stated that in an "environment lacking growth prospects," the group must adjust its capacity to the 9 million vehicle level to match real market demand.
This statement reflects a common challenge facing the entire European automotive industry.
On one hand, uncertainty in the US market is increasing. In recent years, the US has continuously adjusted trade policies, raising costs for some imported vehicles and components. For Volkswagen, which relies on a global supply chain, profitability in the North American market is affected.
On the other hand, demand growth in Europe itself is limited. The Chinese market has transformed from a global growth engine for automobiles into the most fiercely competitive battleground. Over the past decade, Volkswagen could rely on the Chinese market to earn supernormal profits; in the next decade, it needs to face challenges from Chinese brands on a global scale.
From this perspective, Volkswagen's plan to cut 1 million units of capacity signifies that it is no longer prioritizing "getting bigger" as its primary goal, but is starting to place "operating more efficiently" at the forefront.
In fact, this kind of change is not unique to Volkswagen. Over the past few years, traditional automotive giants like Ford, General Motors, and Stellantis have all been closing factories, reducing model lineups, and cutting costs. The global automotive industry is shifting from pursuing scale expansion to pursuing capital efficiency.
The unique aspect for Volkswagen is that it happens to be positioned at the intersection of the old and new eras.
Whether Volkswagen will indeed sell some of its factories in the coming years, and whether XPeng will become the first Chinese new energy vehicle maker to take over capacity from a traditional European automaker, remains uncertain.
But one thing is becoming increasingly clear. As the global automotive market enters a stage of competition for market share, what ultimately determines victory is no longer who owns more factories, but who can manufacture products that consumers are willing to buy at lower cost, faster speed, and higher efficiency.
In this sense, whether the cars produced in Volkswagen's factories in the future bear its own badge or a Chinese one may no longer be as important.
What is more significant is that the center of gravity of the global automotive industry is gradually shifting from the banks of the Rhine to the Yangtze River basin. Volkswagen's current initiative to downsize its capacity is, in a way, a reflection of this very transformation.
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