Volkswagen (OTCMKTS:VWAGY) is reportedly planning a round of layoffs. The company says that its namesake brand is “no longer competitive” due to its “pre-existing structures, processes and high costs.” The announcement of the Volkswagen layoffs was given to staff today, according to Reuters.
Shares of VWAGY stock are down slightly as of this writing. The stock opened at $12.92 per share on Nov. 27. Currently, the company has a market capitalization of about $65 billion.
Volkswagen Layoffs: VW’s Bugs
Volkswagen has been under pressure for nearly a decade, since the “Dieselgate” scandal led it to turn to electric vehicles (EVs) for growth. The company developed an EV platform called the Modular electric drive matrix (MEB). At one time, Volkswagen also had 15% of China’s auto market. That percentage is now down to 10%.
VW’s problem lies in competition from China’s own automakers — like BYD (OTCMKTS:BYDDY) — as well as from Tesla (NASDAQ:TSLA), which has one of its largest factories in Shanghai. Management says the Chinese market has become very price-sensitive. Volkswagen is preparing to launch electric vehicles in China priced at $20,000 in the next few years. The new cars will be built on another new platform, which VW calls A Main Platform.
Despite these problems Volkswagen says that its EV deliveries were up 45% through September when compared with a year ago. During the nine-month period, the company delivered 531,500 EVs. During the third quarter, more than half of the firm’s EV deliveries were in Europe.
Looking forward, Volkswagen is pinning much of its hopes for the future on Scout, a $40,000 EV that will come in pick-up and SUV versions. But all EV makers, including Tesla, have recently come under pressure as the top end of the market becomes saturated. Most, like VW, are now planning to launch less-expensive EVs in the middle of this decade. That said, short ranges and underdeveloped charging infrastructure have many questioning the future of the industry. Tesla now controls the North American Charging Standard (NACS) as well.
Still, Volkswagen is aiming to secure 10% of the U.S. market by 2030, up from 4% currently.
What Happens Next?
The middle market for EVs is heating up rapidly. Many legacy automakers are targeting prices in the $25,000 to $40,000 range over the next few years. But charging infrastructure will have to keep up if these automakers are to sell their electric vehicles.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
