Volkswagen, once a symbol of the German auto industry, is struggling to keep pace with the global market today, mainly due to failures in electric vehicles (EVs) and declining sales in the key Chinese market. The company, which includes brands such as Audi, Porsche and Skoda, has been facing financial challenges that have forced it to take dramatic cost-cutting measures.
Volkswagen's electric vehicle sales fell by 10 % globally, while the overall EV market is growing at a 31% annual rate. In the Chinese market, which historically brings in as much as half of Volkswagen's global profits, their market presence has fallen by almost 50 %s compared to previous years. This led to a significant loss in the last quarter, when their revenue from China fell by 15 %, deepening the company's financial crisis.
Declining demand and competition from China
Chinese automakers such as BYD are offering cheaper and more technologically advanced EVs, making it increasingly difficult for Volkswagen models to find buyers. Models such as the ID.4, produced in Tennessee for the US market, met with poor response and sales of as many as 80 %s fell short of expectations.
In addition, Volkswagen planned to close some plants in Germany due to low demand - a first in the company's history - which sparked a wave of disapproval among unions.
The ID.7 is a harbinger of positive changes at Volkswagen. Currently the best car of this group.
Lack of innovation and poor planning
Volkswagen also faces criticism for its lack of innovation. While the company is struggling to keep up with the technology and design standards set by its Chinese and American rivals, its electric vehicle models don't offer key benefits like exceptional range, charging speeds or advanced software, making them less appealing to modern buyers.
Financial crisis and forecasts
For the second time in the past few months, Volkswagen has lowered its revenue, profit and cash flow forecasts due to all these problems. By the end of 2024, they expect a more than 30% drop in profits. As the company's CFO said, labor and production costs are too high, especially in Germany, which threatens Volkswagen's competitiveness in the global market.
What actually led to this
Volkswagen, once synonymous with German automotive quality and innovation, today faces many challenges, which are mainly the result of the period under the leadership of Herbert Diess. His efforts to make Volkswagen emulate Tesla in terms of software and production simplification brought the company to the brink of a crisis, which today is mainly manifested in poor quality, low appeal of electric vehicles and poor user experience. Diess wanted to change the company without first changing the company's biggest problem - the culture. Without a change of mentality in the company and concrete personnel changes, good ideas often fall on "deaf" ears.
Diess brought new ideas to the company, but many were wrong or poorly executed. Many claim that it is due to the relative negative selection at Volkswagen, which also recruited based on political beliefs. Diess, who was known to be a Tesla and Elon Musk enthusiast, wanted to follow their cost-effectiveness strategy, forgetting the crucial quality of the products. Volkswagen's electric models such as the ID.3 and ID.4 were criticized at launch for using cheap materials, unresponsive software and an unpleasant user experience - examples include the unpopular "sliders" for volume control and air conditioners that don't light up at night and are useless. Meanwhile, Škoda and Cupra, which are also under Volkswagen's umbrella, kept more user-friendly solutions and quality materials, which further weakened Volkswagen's models in comparison.
Problems also escalated in the area of software. Volkswagen's software development strategy, called "Car.Software", included several complex platforms, such as MEB for basic electric models, PPE for premium models, and the long-term "Trinity" platform, which is not expected to be used until 2030. Due to the lack of a unified vision, software development has become time-consuming and suboptimal, which is also reflected in the discrepancy between expectations and the actual user experience. It's all been put together only in the last two years.
At VW, they understood too late that electric cars do not only have a modified drivetrain, but that they are much more than just that.
Overall, Volkswagen seems to have lost its sense of aesthetics and ergonomics under Diess. Models such as the Golf 8 and ID.3 were often less popular in terms of design than models from rival brands such as the Cupra, which had a better understanding of market preferences. In surveys, Volkswagen vehicles have lost a lot in the perception of quality and design, which is the result of long-term neglect of the needs of users.
Oliver Blume, the new CEO, is now looking for a way out of this crisis. It aims to re-establish more intuitive vehicle handling, higher quality materials and recognizable Volkswagen aesthetics. So we can expect future models like the Tiguan to have physical buttons and customized software that will be more user-friendly. Despite the problems, Volkswagen is committed to improving and returning to the quality standards that once made the brand famous.
The conclusion is clear: although Volkswagen struggled to follow Tesla's model under Diess, a series of poor quality and user experience decisions and failures in the Chinese market led the company to one of the biggest crises in its history. Blume and the team will have to work hard to regain the trust of customers and revive Volkswagen's legacy as synonymous with quality and innovation.
What can Volkswagen solve?
Volkswagen can get out of the current crisis with a deliberate strategic change. Although it already has technology that exceeds most Chinese solutions in certain segments - as can be seen in Porsche Taycan, one of the best electric cars of the moment – the key is to transfer these innovations to wider mass models. An example of such an approach would be the Volkswagen ID.7 model (currently by far the best VW electric car), which already shows the potential to become an affordable "people's" electric car. To really achieve this, Volkswagen would have to lower the price by at least 10,000 euros, which is only possible with increased production and economies of scale. So if it becomes popular and replaces the VW Passat. Such a car, which would be around 35,000 euros after subsidies, would be completely competitive with Tesla and other leaders. If Tesla was the benchmark in the past, it should also be in the "adjusted" retail price. In the awareness that there we get a radically different car, which has its own charging infrastructure and, as we can see, drives itself with the FSD system.
One of the necessary steps for VW would be to streamline the strategy and eliminate "sitting on multiple stools". This approach, where the company is constantly looking for a compromise between history and the future, prevents it from focusing on the key task - to become a leader in the world of electric vehicles.
Volkswagen can regain its old trust in quality if it offers its users better warranty conditions: a longer battery and powertrain warranty (300,000 km) and a general five-year car warranty. It is also important for VW to prioritize cars with a usable battery capacity of over 50 kWh, as such vehicles will be suitable for all-round use, not just as a second or third car. So, to solve the basic concerns of its customers, while at the same time working on not making big mistakes. However, the method of production must also change. He has to improve the products in the factory practically on a monthly and constant level and thus really internalize the way Tesla and the Chinese develop cars.
The first positive signs that everything is not so bleak can be seen in the model ID.7 station wagon, which suggests that Volkswagen can compete in the electric segment. But the turning point will be when the innovations found in the Taycan also make it to more affordable models. Models below 25,000 euros, equipped with a competitive warranty, more powerful batteries, faster charging and the ability to charge three-phase with 22 kWh already in the basic city models (where it is most efficient), would be a real breakthrough for Volkswagen's future.
When Volkswagen innovates to reach even the basic models and offer consumers versatile, durable vehicles with a competitive warranty, they will finally have a solution that will meet future challenges.
It's not about switching to other energy sources, it's simply about the fact that the car is from turned classic watches into a computer on the wrist. Volkswagen must follow the "future", because if it clings to the past, it will not experience the future.
