VOLKSWAGEN Group has taken the industry by surprise by scaling back production at one of its electric vehicle plants with the head of one of its unions telling the media the cutbacks follow “strong buyer reluctance” to purchase the company’s EVs.

The company has decided that during July and August at Volkswagen’s Emden plant in Lower Saxony two weeks leave will be added for workers on electric vehicle lines. The extra downtime is in addition to the up-coming normal four weeks leave that all workers get for the summer holidays; making six weeks altogether.

The union told German media that production of electric models was running at 30 per cent more than sales. Production of ICE models, including the Volkswagen Passat, will continue as normal at the plant.

“We are experiencing strong customer reluctance in the electric vehicle sector,” the union told the North West newspaper.

Volkswagen has invested around $A1.6 billion at the Emden plant to convert it to EV production as part of its global plan to make 1.2 million EVs a year. 

The Volkswagen Group says it will invest a total of 21 billion euros ($A34 billion) up to 2026 to make Lower Saxony Germany’s centre for electric mobility.

In 2022, when VW started making the ID.4 at Emden, Christian Vollmer, member of the Volkswagen Brand Board of Management responsible for production and logistics said: “The consistent expansion of the production network is key for the success of our global electric offensive.

“With the knowledge and experience gained in Emden, we will be able to drive the transformation of other plants quickly and efficiently. Innovative production concepts and highly qualified teams form the basis for this approach.”

Four Volkswagen plants in Germany produce EVs: Emden, Zwickau, Hanover and Dresden. VW also makes EVs in two plants in China and in its Chattanooga plant in the US.

The fact that it is Volkswagen Group that has taken the plunge to cut production of EVs is especially worrying because VW, as part of its multi-billion settlements with governments over ‘dieselgate’, made massive commitments to electrify its fleet as a way of cleaning up the emissions it illegally foisted on the world at 40 times the allowable levels via some 11 million vehicles over six years.

Over the past few years VW has committed tens of billions of Euros to its electric car programs. For their ambitions to appear to stall at this early stage in recouping that investment would be concerning for the company.

Indeed, the $A50 million the company has already paid in compensation and penalties for diesel transgressions could be deemed to be part of its investment in EVs given that its promises to swing over to electrification on a grand scale were so inextricably linked to the settlements with regulators.

Analysts are saying that sales in the EV market are not growing fast enough to cope with the raft of new electric models and increased production capacity coming on stream.

Investment analysts Morgan Stanley told Reuters that it was expecting a slowdown in European demand for EVs because of ongoing cuts in government subsidies. It said that traditional car makers in addition to VW Group would “slow down or delay their announced EV plans for many quarters or even years”.

Analysts at the investment bank said that its EV forecasts for the mid-2020s for companies like GM and Ford were only a fraction of the estimates management at those companies were stating.

An analyst at investment group Stifel, Daniel Schwartz, told Reuters: “Reducing the number of temporary staff and cancelling a shift signals that VW is not expecting this to improve in the short term.” 

Among the models affected are the ID.4 SUV and early production of the ID.7 sedan which is scheduled to be launched at the end of this year. Production of the ID.7 had originally been planned to start in July but has now been delayed.

The details of the cutbacks in shifts at the Emden plant came from the German Press Agency in a conversation with Manfred Wulff, the head of the works council in Emden who confirmed that the company has also told 300 of the plant’s 1500 temporary workers that their contracts will not be renewed in August.

In an interview with the North West newspaper, the minister of economic affairs for the state of Lower Saxony, Olaf Lies, said: “Registration numbers of electric vehicles continue to be high, but what concerns us is the current dip in demand – not only at Volkswagen but across all manufacturers.” 

A Volkswagen statement said: “We are confident that the plant’s utilisation will increase again with the launch of the ID.7 at the end of the year.

“The Volkswagen brand, like other car manufacturers, is currently seeing softening demand for electric cars. Reasons for this include: reduced subsidies, higher inflation and recent longer delivery times due to the shortage of parts. 

“We are confident that demand for all-electric cars will pick up again as the year progresses. With the extensively revised ID.3 and the new ID.7, we continue to launch attractive new models,” the statement said.

Meanwhile a British auto blogger, Geoff Buys Cars, says that one reason for the reluctance to buy EVs is the poor resale value of the EV versions compared with ICE versions.

He said that an ID.3 he studied had seen the car depreciate by $A36,700 over two years while an equivalent VW Golf depreciated by $A9210.  He said that even allowing for free road tax and allowing for no power charging costs for the ID.3, it was $A16,310 worse off than the Golf over the two years.

Geoff Buys Cars: UK classified used car data

VW ID.3 cost more to own than ICE Golf over two years: $A16,310

While this is essentially a back-of-the-envelope exercise, the difference is still great enough to be significant.

Comment by John Mellor