Volkswagen AG, Europe’s largest automaker, is reportedly planning significant workforce reductions and factory closures amid deepening challenges in the continent’s automotive sector. According to German media reports last week, the company intends to cut approximately 100,000 jobs—around one-sixth of its global workforce—and shutter four plants. Volkswagen has neither confirmed nor denied these accounts. Industry observers speculate that the automaker may also divest or spin off divisions, including the luxury brand Lamborghini. Recently, Volkswagen sold its majority stake in its Everllence ship engine business for £7.4 billion as part of a broader restructuring effort.

Volkswagen’s difficulties are reflected in its market valuation, which has fallen sharply in recent years. Over the past year, the company’s share price declined by 21 percent, and over the previous five years, it has lost roughly 75 percent of its value. In contrast, Tesla, which produces far fewer vehicles, now boasts a market capitalization approximately 38 times greater than Volkswagen’s. Oliver Blume, Volkswagen’s CEO, attributed the company’s downturn to “wars, geopolitical tensions, trade barriers, stricter regulations, and intense competition,” suggesting a comprehensive overhaul is necessary.

While competition from Chinese electric vehicle (EV) manufacturers is frequently cited as a key factor behind Volkswagen’s retreat, industry analysts emphasize that European carmakers, including rivals such as Stellantis (owner of Fiat, Peugeot, and Dodge), have been facing headwinds for several years. European car production and consumer demand have declined amid rising vehicle prices, driven in part by increased costs for raw materials such as aluminum, copper, and steel, as well as expenses related to safety and electronic features like lane-change warnings and automatic emergency braking.

European automakers have also been criticized for focusing on heavier, technology-laden vehicles catering primarily to wealthier customers, rather than producing affordable, practical models for the broader market. This shift, combined with a late start in the EV segment, has hindered the industry’s competitiveness. According to the European Automobile Manufacturers’ Association (ACEA), EU car production peaked at 14.9 million units in 2017 but fell to 11.5 million in 2025, despite a partial recovery from a low of 10 million units in 2021. Meanwhile, retail prices for subcompact and compact cars rose by roughly one-third between 2018 and 2024, with some small SUVs increasing in price by more than £10,000.

The decline of vehicle production in Italy illustrates the broader downturn in Europe. The country, which produced over two million vehicles annually in the late 1980s and early 1990s, manufactured only 238,000 cars in 2025, fewer than Portugal. Other European manufacturers are also facing significant challenges: Stellantis reported a £22.3 billion loss last year, suspended dividends, reduced its EV rollout, and cut thousands of jobs, including in Italy. Nissan has halved production at its Sunderland plant in England and plans to reduce European staffing by 10 percent, while Renault announced layoffs of 800 engineers in France.

Future pressures on the European automotive industry are expected to increase due to three main factors: resistance from unions, particularly in Germany where Lower Saxony holds a 20 percent voting stake in Volkswagen; loss of market share and profits in China as domestic EV producers rise up the value chain; and the expanding presence of Chinese car brands in the European market, which accounted for 7 percent of EU sales last year, up from 5 percent in 2024.

Volkswagen and other European automakers face a critical test in their ability to reduce costs and produce competitively priced vehicles to sustain demand. Failure to do so could open the door for Chinese manufacturers to capture a larger share of the European market.