Clearly, its current slogan ‘Drive Bigger’ rather than its old slogan ‘Das Auto’ – The Car – hasn’t worked for Volkswagen. VW’s announcement of plant closures and layoffs in Germany highlights a series of setbacks to the future-proofing of its business. The company’s problems stem from China, its largest market, which it has ironically dominated for decades. There, buyers are turning their backs on fuel-powered cars and opting instead for domestic electric vehicles. VW doesn’t yet have a strong electric vehicle lineup, and falling sales in China have offset the company’s sales in the rest of the world. The company’s electric strategy is no match for rivals such as BYD, which is leading the rise in electric vehicle exports to Europe. As a follower, VW has been caught up in tariff wars between China and the EU. Germany cut subsidies for electric vehicles earlier this year, making it harder for VW to transition to electric vehicles.

Negotiations with unions over job cuts will not be easy, with Germany facing labor shortages that have led to unusual experiments such as the 4-day working week. VW plays an important role in strengthening German manufacturing, and the company’s performance will have knock-on effects. The country has not yet resolved the issue of paying for climate mitigation costs. The auto industry is unlikely to benefit from subsidies on the scale of Chinese automakers. This could push German car companies to consider alternative approaches to emissions reductions as China ‘dumps’ cheap EVs into its home and major overseas markets.

The tide could turn in VW’s favor if car buyers outside China aren’t fully convinced that EVs are the way to go. EVs involve extra costs to develop the technology as well as to install charging infrastructure. If governments tighten their grip on subsidies, consumers will have to cover these extra costs, which could slow electric vehicle sales. VW’s comeback will depend on its ability to fight the EV price war. Tesla was forced to lay off staff by Chinese EV manufacturers. The pain could be even greater for VW. It’s a cautionary tale if ever there was one, of a market biggie who couldn’t keep up with the fast lane.