Volkswagen announced on Tuesday that it might close the Brussels plant of its luxury brand Audi due to a significant decline in demand for high-end electric vehicles.
This downturn has impacted Europe’s leading carmaker, prompting it to reduce its margin target for the current year.
The potential closure of the Brussels site is noteworthy as Volkswagen has not shut down a plant since it closed the Westmoreland site in Pennsylvania in 1988.
The last VW brand chief to suggest closures in Europe stepped down shortly after making such threats, according to a labor source.
The automotive industry, including Volkswagen, has faced challenges due to lower-than-expected demand for electric vehicles (EVs) despite substantial investments in production capacity and technological advancements.
Audi had previously warned that its sales might decline in 2024 as it introduces new models while simultaneously attempting to cut costs.
Volkswagen stated that the expenses associated with either repurposing the Brussels plant or shutting it down, along with other unforeseen costs, could amount to as much as 2.6 billion euros ($2.8 billion) in the 2024 financial year.
Consequently, Volkswagen revised its forecast for operating returns to 6.5-7% from the previous 7-7.5%. This adjustment led parent company Porsche SE, which owns just under a third of Volkswagen AG but holds most of the voting rights, to lower its earnings forecast to between 3.5 billion and 5.5 billion euros.
Following this announcement, Volkswagen and Porsche SE shares listed in Frankfurt fell by 1.7% and 2.1%, respectively.
Audi’s Q8 e-tron, launched in 2018, has seen a significant drop in demand. The company is considering ending its production entirely, with sources close to the company indicating this could happen as soon as 2025.
The Brussels plant, which produced around 50,000 cars last year, also faces “long-standing structural challenges,” including difficulty in modifying its layout due to its proximity to the city and high logistics costs.
Audi has initiated a consultation process to explore alternative solutions for the plant, which employs approximately 3,000 people.
“This may include ceasing operations if no alternative is found,” Audi’s statement noted.
The first quarter of 2024 saw Volkswagen’s operating profits decrease by 20%, partly due to delivery delays at Audi. These delays were exacerbated by a two-week closure of the Brussels plant in February caused by component shortages.
During this period, a spokesperson mentioned that Audi was evaluating potential new production options for the plant. Rita Beck, spokeswoman for the Audi Committee in the European VW Group Works Council, emphasized the need for a sustainable plan for the Brussels site and its employees. “The Audi management must take responsibility for the site,” she stated.
Additional unplanned expenses affecting the Volkswagen Group included exchange rate losses due to the deconsolidation of Volkswagen Bank Rus within its financial services division and the planned closure of the gas turbine business by subsidiary MAN Energy Solutions.
Main Image: Par Karmakolle — Travail personnel, CC0, https://commons.wikimedia.org/w/index.php?curid=63162164
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