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Volkswagen AG’s (OTC:VWAGY) PowerCo battery subsidiary is cutting production in what observers say is the latest sign that the 87-year-old car manufacturer is facing weak electric-vehicle sales.
The decision comes just a few years after an emissions scandal cost the company billions of dollars.
What Happened: PowerCo will run a Salzgitter plant in Germany at half capacity by erecting only one of two planned production lines at the facility. This will lower capacity to 20 gigawatt hours.
The move has employees concerned that it is part of a broader cost-saving plan at Volkswagen.
The carmaker may consider shuttering plants in Osnabrueck in Lower Saxony and Dresden in Saxony, CNBC reports.
Employees protested on Wednesday at the company’s general meeting in Wolfsburg in front of company executives, who said the company and its workers must take “joint responsibility” in turning the company around.
Volkswagen recorded a profit of 3.631 billion euros ($4 billion) for this year’s second quarter. That’s down 4.2% from a year ago, according to the company’s quarterly earnings report released on Aug. 1.
Profit for the first half of 2024 came in at 7.341 billion euros, a 13.9% drop from what was earned during the first six months of last year.
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Why It Matters: Vehicle sales for Volkswagen, which has focused on EVs since 2017, fell in 2021 by 23.4% in Western Europe. Sales also fell 17.1% in North America and 9.9% in China, in 2021, Reuters reported.
The decision to cut battery production at the Salzgitter plant comes just days after billionaire and Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk questioned the company’s plan to invest $5 billion in Rivian Automotive, skeptical over Volkswagen’s ability to come up with that kind of money.
The company’s current financial difficulties follow a “Dieselgate” emissions scandal in which Volkswagen paid $4.3 billion in penalties and was found guilty of programming turbo direct injection diesel engines to activate emissions controls only during laboratory emissions testing.
As a result, the vehicles, which were made from 2009 to 2015, emitted 40 times more nitrous oxide than allowed by U.S. standards.
The scandal, which resulted in charges against Volkswagen executives, involved about 11 million cars worldwide, including 500,000 in the U.S.
Martin Wintertkorn, Volkswagen’s CEO at the time, appeared in court earlier this week on charges of fraud, market manipulation and perjury, BBC reported.
Winterkorn, 77, denies the charges but has paid 11 million euros to Volkswagen, which has paid out 30 billion euros in recalls and consumer payments, for the scandal. If convicted, he could spend up to 10 years behind bars.
Price Action: Volkswagen slipped 4.65% to $10.66 into Friday’s mid-afternoon trading.
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