Volkswagen’s outsourcing strategy and its impact on Europe

Volkswagen, one of the giants of the automotive industry, has recently made headlines for its massive investments in China, confronted instead with the possibility of heavy job cuts in Germany. Much has been said about the closures in Germany and almost nothing about what has been invested in China.

Volkswagen announced in April a plans to invest 2.5 billion euros ($2.68 billion) in China to expand its production and innovation hub in the city of Hefei in Anhui Province

Volkswagen’s decision to invest in China is not isolated. It is part of a broader trend of outsourcing by European companies seeking to reduce production costs by taking advantage of a cheaper work environment. However, this strategy has the potential to hurt workers and economies in European countries.

One of the most immediate effects of this outsourcing is the possible loss of jobs in Germany. Oliver Blume, the CEO of Volkswagen, suggested that closing German factories would be a blow to the country’s auto industry, which is already facing pressure from Chinese rivals and growing energy costs as a result of decoupling from Russia.

In addition, increased investment in China, despite a decline in sales, suggests a long-term strategy that could favor the Chinese market at the expense of the European market. From 2020 to 2024, the market share of German car companies in China fell from 19 percent to 16 percent, while Volkswagen’s sales decreased from 4 million units to 2.5 million.

This situation raises questions about the sustainability of such a strategy and its implications for the future of the European auto industry. While the investment in China may seem like a strategic move to gain access to a rapidly expanding market, Europe risks becoming a secondary player in its own industry, with potentially serious consequences for employment and economic growth.

In addition, there is another problem with these investments: what appears is that Volkswagen is relocating its production to China, with investments poorly justified by the prospect of local growth, in order to gain competitive advantages over other European automakers or, in general, toward all factories still producing in Europe.

In this way VW seeks to apply the usual German tactic of harming everyone, including itself, in order to be able to say today that it is a successful company. It does not matter that, perhaps, in 10 years there will be no more companies producing cars in Europe; the important thing is that this year the executive on duty can say that he or she made a penny more in profits.

A short-term mindset that has already caused VW to invest in electric mobility rather carelessly and blindly, without considering whether consumers would find this appealing and whether the infrastructure would be in place to support the switch to electric vehicles. Now it is being done with investments in China and fighting against import tariffs on Chinese cars. Without realizing that, as things stand, in 20 years there will be no VW in either Europe or China.