Volkswagen to Lay Off 100,000 Employees: The Cost of Transitioning to Software

Volkswagen Group is reportedly considering a workforce reduction of up to 100,000 employees over the next few years. According to reports from Manager Magazin, Reuters, and other international media citing insider information, the company is also contemplating closing several factories in Germany. While Volkswagen has officially stated that “no specific numbers or lists have been confirmed,” the growing seriousness of internal management challenges is evident.

A Structural Crisis Revealed by 53%

Profit Decline

In 2025, Volkswagen reported sales revenue of approximately €321.9 billion and maintained annual vehicle sales at around 9 million units, nearly unchanged from the previous year. However, its operating profit for the year dropped by 53% to around €8.9 billion, with its operating profit margin falling to a mere 2.8%.

These figures do not indicate a decline in demand. The fact that sales revenue remained steady while profits plummeted suggests simultaneous pressure on product configuration, cost structure, and revenue models. Maintaining sales volumes of 9 million units while failing to generate profits highlights structural issues within Volkswagen’s business model.

During the era of combustion-engine vehicles, Volkswagen leveraged global manufacturing scale, platform strategies, and profits from the Chinese market to distribute its substantial development costs. The arrangement, where Europe served as the core of brand and technology, China contributed growth and profits, and North and South America played supplementary roles, worked well as long as sales volumes remained strong.

The shift to electrification disrupted this balance. Battery technology and software platforms require continuous investment, European EV demand remains unstable, price and smart technology competition in the Chinese market has intensified, and U.S. trade policy introduces uncertainties. These factors combined mean that scale no longer directly correlates with profitability.

German Factory Closures and Labor Relations

Tug-of-War

The most sensitive aspect of international media reports is the potential inclusion of Germany’s key factories in the restructuring plans. Factories mentioned as candidates for closure include Hannover (approximately 14,000 employees), Zwickau (approximately 8,000 employees), Emden (approximately 7,700 employees), and Audi’s Neckarsulm factory (over 15,000 employees). If these closures were to occur, over 45,000 jobs could be at risk.

These factories are central assets in Volkswagen’s manufacturing base, with Zwickau and Emden particularly serving as flagship facilities for the company’s EV transition. Their potential closure signals a fundamental reassessment of European EV demand and the competitiveness of Volkswagen’s ID series.

Labor unions are strongly opposing these plans. According to Reuters, Volkswagen’s labor union chairperson Daniela Cavallo and IG Metall union leaders have labeled the closure of domestic factories as a “red line.” While unions are not outright rejecting discussions on efficiency improvements, they are firmly against breaking past agreements that guaranteed job security.

Volkswagen is not just a public company; the Lower Saxony state government is a significant shareholder, and labor unions and employee representatives wield substantial influence over corporate governance. Management pursues efficiency, unions demand job stability, and local governments prioritize social stability. Meeting all three demands simultaneously presents a daunting challenge.

Germany’s industrial model has historically provided Volkswagen with long-term stability. However, during this period of rapid industrial transformation, this system may hinder organizational flexibility. While American tech companies can swiftly implement workforce reductions, Volkswagen’s reforms must navigate a complex structure involving the supervisory board, unions, local governments, and capital markets.

The Side Effects of the Platform Strategy

Volkswagen’s past success was built on its scale and platform strategy. The MQB platform is a quintessential example of platform strategies in the global automotive industry, enabling diverse brands and models to share resources in research and development, components, and supply chains through a unified architecture. Audi, Porsche, Škoda, SEAT, and Bentley formed a matrix of brands covering everything from mass-market to luxury vehicles.

In the era of combustion-engine vehicles, this model worked remarkably well. With core technologies like engines, transmissions, and chassis remaining relatively stable, the economies of scale grew as the platforms matured.

The transition to EVs and software-defined vehicles fundamentally changed the rules of competition. The move to motors, batteries, and electronic control units has simplified hardware structures. Consumers now evaluate vehicles not only for mechanical quality and brand heritage but also for intelligent cockpits, driving assistance features, charging efficiency, software update speeds, and price.

CARIAD represents the crux of this structural conflict. While Volkswagen established CARIAD to take the lead in software-defined vehicles, the division has consistently delayed the development of EV and smart vehicle features across multiple brands. The postponement of the SSP platform exposed the challenges of integrating software with hardware.

The root of the problem lies not only in the technical capability of the software team. Traditional automotive development is optimized for long cycles and waterfall processes, whereas software development demands rapid iteration and cross-departmental collaboration. Volkswagen’s attempt to manage its software organization under the logic of traditional vehicle development has led to complex processes, prolonged decision-making, and a product rhythm that fails to keep pace with market changes.

This is the paradox of the platform strategy: without a unified software foundation, EV platforms cannot achieve synergy. However, building a unified software foundation requires breaking down organizational barriers formed over decades among brands, regions, models, and suppliers. The larger the organization, the higher the internal coordination costs, making true software platform unification increasingly challenging.

Transformation of the Chinese Market and New

Competitive Rules

The significance of the Chinese market for Volkswagen has also shifted dramatically. In 2025, deliveries in China dropped by approximately 8% year-on-year to around 2.69 million units. While the scale remains significant, and Volkswagen continues to be one of the most important foreign automakers in China, the nature of the market has fundamentally changed.

China, once Volkswagen’s most important source of overseas profitability, has now become the most fiercely competitive market in terms of price and smart technology. Volkswagen faces not just a single competitor but multiple challenges. BYD exerts pressure through its scale and cost management in the new energy vehicle market. Traditional domestic brands like Geely, Changan, and Chery are accelerating their transition to electrification, while new players like Li Auto, XPeng, and NIO are reshaping user expectations for smart technology.

Volkswagen’s strengths in brand power, sales channels, and manufacturing quality still hold value, but they no longer provide decisive advantages. More importantly, competitive strategies refined in the Chinese market—faster product updates, more flexible supply chains, and stronger software experiences—are beginning to spill over into the European market.

Volkswagen’s dilemma boils down to the manifestation of the side effects of scale. Factories, employees, supply chains, sales networks, and multi-brand systems are not assets that can be downsized at will. When market demand changes, Volkswagen’s adjustments require mobilizing the entire massive system. While its past strengths still exist, their maintenance costs are increasingly eating into profits.

As we enter 2026, the patience of capital markets toward Volkswagen has visibly declined. Its market capitalization fell from €52.4 billion at the end of 2025 to approximately €37.6 billion by the end of June 2026—a loss of about 28% in just six months. This indicates that the restructuring is not merely a matter of cost-cutting but a broader reevaluation of profitability, transformation efficiency, and organizational resilience.

Editorial Opinion

In the short term, it is unlikely that Volkswagen’s restructuring will proceed smoothly. The entrenched conflict between labor unions and management shows no signs of resolution, and discussions on factory closures involve politically sensitive issues. The immediate challenge over the next three to six months will be to accelerate decision-making while maintaining the framework of labor-management cooperation. Restructuring CARIAD is also inevitable, with the potential for increased outsourcing of software development and strengthened partnerships.

In the long term, Volkswagen’s situation serves as a harbinger of the structural challenges confronting traditional automakers as a whole. In an industry where economies of scale are becoming increasingly ineffective, reconciling organizational rigidity with the need for speed in transformation is a problem not limited to the automotive sector but common across many manufacturing industries. The extent to which Volkswagen can execute organizational reforms in the next one to three years will serve as a litmus test for the transformative capacity of European manufacturing.

From an editorial perspective, Volkswagen’s case highlights the paradox of how past success factors can become obstacles to future growth. The ability to overcome this paradox will be critical for the company’s survival and for the global automotive industry’s adaptation to new realities.

References

• TMT Post: Behind Volkswagen’s 100,000 Restructuring Plan, Germany Faces Cuts at Home — Published June 29, 2026