Report: Volkswagen plans to carry out the largest restructuring in decades.

The journey of Chinese brands going to Europe has put tremendous pressure on century-old European car companies.

According to the German Business Daily on June 12th, Volkswagen Group is planning a large-scale restructuring called the "Performance Plan". The German Business Daily quoted Volkswagen executives as saying that this round of restructuring may be the "largest in scale in decades". The main reason for the restructuring is that the Volkswagen brand, which accounts for about half of the group's revenue, has not created enough profit.

Although it is the revenue pillar of the group, the Volkswagen brand has always been the one that lags behind in terms of profit. In the first quarter of this year, Audi created a profit margin of 10.8%, the best in history. Its another luxury brand Porsche also reached 18.2%. Skoda, which is also a low-priced model, has 8%, while Volkswagen has only 3%.

The main content of the "Performance Plan" is to reduce costs and increase efficiency. According to reports, Volkswagen executives plan to increase Volkswagen's profit margin from 3% to at least 6.5%. A senior company official said that for every one percentage point increase in profit margin, 1 billion euros of expenditure must be reduced.

In 2022, Volkswagen Group's capital expenditure was 12.7 billion euros, accounting for 5.5% of its automotive business revenue. In the next five years, Volkswagen plans to invest 180 billion euros in digitalization, electrification, and improving competitiveness in the Chinese and North American markets. 68% of the funds will be used for digitalization and electrification.

The performance plan will first be implemented through adjustments to the production line. Volkswagen CEO Thomas Schäfer believes that factories should be adjusted according to vehicle platforms, not brands. He cited the example of joint production of Volkswagen Passat and Skoda Superb, which ultimately saved the group 600 million euros. If the scope of production line adjustments can be expanded, the Volkswagen Group can "save billions of euros in the next few years", and the saved money can be used for the huge investment in electric vehicles.

In addition, the "Performance Plan" may also involve layoffs, but Volkswagen has not yet disclosed any information about how many jobs will be cut, which types of production will be transferred, and to what extent wages and social welfare will be reduced.

In May, due to the serious lag in the research and development progress of its software department CARIAD and its continuous losses, Volkswagen has already dismissed all senior executives of the department except for personnel.

Volkswagen Group is striving to follow the trend of electrification in the global automotive industry. However, the electric vehicle product lineup of this century-old car company seems to lack competitiveness compared to newcomers such as BYD and Tesla. The German Economic Weekly previously commented:

"Chinese suppliers can manufacture electric vehicles at extremely low prices because they control the entire value chain from battery raw materials to car sales. Newcomers like Tesla, with their lowest management costs and revolutionary low-cost production methods, have forced traditional Wolfsburg companies (i.e. Volkswagen) into a desperate situation."