Tuesday, July 23, 2024

VW Weighs First-Ever Car Plant Closing in Europe to Cut Costs

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(Bloomberg) — Volkswagen AG will potentially shutter an Audi electric-vehicle factory in Belgium to save costs, in what would be a watershed moment for Europe’s biggest carmaker.

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The manufacturer has never closed a car plant in the region, but the high-expense Brussels site could become the first due to poor demand for an electric SUV made there. Volkswagen cited additional expenses including from the restructuring for lowering its outlook for the year.

Carmakers have been grappling with poor EV sales, prompting a range of manufacturers including Mercedes-Benz Group AG to rethink plans. Key regions including Germany, Europe’s biggest auto market, have removed or cut incentives for EVs, raising the pressure on incumbents with new competitors like China’s BYD Co. moving in on their turf. Volkswagen’s strong union presence has complicated the company’s past restructuring efforts.

Closing the plant would be “a major step in the right direction,” Deutsche Bank analysts led by Tim Rokossa said in a note. “Most investors would have not seen that as a possibility.

The German carmaker reduced its forecast for operating return to as much as 7%, down from a previously predicted high of 7.5%, according to a filing late Tuesday. Additional costs burdening this year’s results are expected to total €2.6 billion ($2.8 billion).

Audi’s management has been in discussions with the Belgian government about the future of its Brussels factory, which only makes the luxury Q8 e-tron model and derivatives. Closing it down is only one of several restructuring options, Volkswagen said.

The move is “part of the cost efficiency and re-sizing program taking place at VW,” Jefferies analyst Philippe Houchois said in a note. It’s “a possible indicator of upcoming restructuring actions across the European automotive industry in coming years.”

Audi’s site near Brussels employs some 3,000 people and has been making the Q8 e-tron since 2022. The Deutsche Bank analysts estimated that severance packages alone would amount to a “sizable” triple-digit-million-euro amount.

VW also detailed additional costs included exchange rate losses, expenses in connection with the planned closure of the gas turbine business of MAN Energy Solutions SE and provisions for termination agreements to cut personnel across the group. The German government this month blocked the sales of the turbine unit to a state-owned Chinese shipbuilding company over national security concerns.

VW will publish its financial report for the first half on Aug. 1.

–With assistance from Jana Randow.

(Updates with analyst comment in fourth paragraph.)

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