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Volkswagen Group is considering moving the production line out of its German base.
According to Bloomberg on September 22, 2022, one of the several plans that Wolfsburg is to transfer multiple model production lines from factories in Germany and Eastern Europe to factories in Volkswagen Group Belgium , Portugal and Spain.
Such radical considerations are helpless. Like many Nordic manufacturing companies, Volkswagen Group is also affected by Russia's restrictions on natural gas exports.
Russia recently cut off the Nord Stream No. 1 natural gas transportation pipeline. Although the initial temporary closure was for repair, it was later extended indefinitely. Russia is the main source of German natural gas.
Russia's move is widely regarded as a political move aimed at punishing Western countries' sanctions imposed on them due to the Russian-Ukrainian conflict. If Beixi No. 1 cannot be reopened, it will cause a serious natural gas shortage from June 2023.
Volkswagen Group wrote in a statement: "As a medium-term alternative, we are focusing on greater localization, capacity transfer or technology alternatives, similar to the conventional approach that has been adopted against the backdrop of challenges such as chip shortages and other recent supply chain disruptions."
Volkswagen Group may maintain production in the next six months if Germany continues to fill gas reserves. Currently, Germany's natural gas reserves are 90%, but this number may drop significantly in the winter. Volkswagen Group has previously promised to reduce its natural gas consumption by at least 20% - a goal set by the German government.
Volkswagen Group is also concerned about its suppliers' ability to cope with rising energy prices. If these suppliers are forced to cut production or even stop production lines, it will have a potential impact on Volkswagen Group's production.
▍The production line is moved out of Germany?
This winter and 2023, if the gas shortage continues to worsen, Volkswagen Group may move production facilities from Germany and Eastern Europe to other regions. This will to some extent subvert the European industrial landscape.
European Natural Gas Infrastructure Company data shows that European natural gas warehouses are currently 85.6%, and German inventory is close to 90%, but the situation is not so clear in winter. If the Nord Stream 1 natural gas pipeline cannot resume supply, Volkswagen Group is expected to face a natural gas shortage starting from June 2023.
In this case, energy-intensive enterprises represented by Volkswagen Group have to find places that can take root in stable energy supply. Germany looks like a nest abandoned by migratory birds, losing its important position in the European economy.
Volkswagen Group invests the most in factories in Germany, Czech Republic and Slovakia , but the situation in these countries is very complicated because they rely almost entirely on Russian gas. Volkswagen Group also has facilities to obtain energy from other places in southern Europe. A spokesperson for Volkswagen Group said southwestern Europe or Nordic coastal areas could be a beneficiary of future production transfers because these areas are more likely to obtain shipping LNG . Volkswagen Group has built automobile production plants in Portugal, Spain and Belgium and has liquefied natural gas terminals in these countries.
Considering the escalation of conflict between Russia and Ukraine and the arrival of winter will maximize the restrictions on natural gas supply, this is a very likely situation, and natural gas mainly comes from Russia.
Volkswagen Group said on September 22 that if the gas shortage continues into winter, it will transfer production from Germany to other countries with more adequate supply, which is one of the alternatives.
This statement was confirmed by Geng Wu, director of Volkswagen Consulting, an internal consulting company of Volkswagen Group. The latter said they are working on capacity transfers or technology alternatives.
And countries such as Portugal, Spain and Belgium have higher temperatures and are easier to obtain LNG transported through the Atlantic Ocean, so there is a greater possibility. Currently, Germany has a natural gas supply of 5 to 6 months.
Volkswagen Group is concerned about the entire industrial system, a large part of which are suppliers. If Germany runs out of natural gas, it will not be able to produce glass, chemicals and electrical appliances used to produce cars.
Although most of the auto parts made in Europe are used by European factories, some are also shipped to foreign factories. As long as one part is missing, the entire production may be stopped. The consequences of chip shortages have confirmed this in recent months. Thomas Steg, head of external relations at Volkswagen Group, said politicians must curb the current uncontrolled surge in gas and electricity prices. Otherwise, "the supply chain of small and medium-sized energy-intensive enterprises will have major problems, and they will have to cut production or stop production."
Volkswagen Group also has large automobile production factories in Latin America, such as Mexico , Argentina and Brazil countries. In these countries, some vehicle production can be achieved through reorganizing production lines. Although it takes a long time, this is also one of the alternatives for Volkswagen Group.
After the German government's regulations on fuel saving were introduced, Volkswagen Group promised to reduce natural gas consumption by more than 20%.
Russia's decision to limit natural gas supply to Europe has raised concerns that Germany may be forced to limit fuel supply. It is reported that natural gas reserves have reached 90% ahead of schedule, but without the help of Russia, Germany will face challenges in replenishing reserves next summer.
It is certain that any major move to transfer production from Europe's largest economy will face huge obstacles. Volkswagen Group has about 295,000 employees in Germany, and workers' representatives account for about half of the 20 members of the Supervisory Board. Therefore, any shift in production may involve a limited number of cars rather than a closure of the entire factory.
VW General Manager of Volkswagen Group's power generation department Michael Heinemann believes that although the plant's natural gas supply is currently guaranteed, European factories are already trying to save to reduce natural gas consumption.
▍Germany
As the prospect of Russian President Putin (Vladimir Putin) cuts gas supply becomes more realistic, Germany's reliance on importing natural gas from Russia is threatening the country's ambition to electrify automobiles. This could lead to a shutdown in German production lines, triggering a wider chain of economic damage.
About 1/4 of Germany's energy demand comes from natural gas, while about 1/3 of the natural gas comes from Russia. Carsten Brzesky, chief economist at German company of Dutch International, predicts that permanent severance of ties with Russia may put the precarious economy into recession, causing the economy to shrink by 2% to 10%.
"The German economy is already on the verge of recession," Brzesky said. "It doesn't take much action to really push it into a severe recession." A significant contribution to the Berlin economy comes from the German automobile industry - it contributes 5% of the economic output and more than 800,000 jobs, accounting for about 12% of the manufacturing workforce.
report shows that at worst, the stolen natural gas supply could lead to a 17% drop in automobile production.
This threatens Germany's plan to continue to maintain its leading position in the development of the automotive industry. Germany is one of the most optimistic countries to promote electrification, including overseas factories, and the production of domestic branded cars in Germany accounts for more than 15% of the world, second only to China, the United States and Japan.
As for the electric vehicles field, Germany produced 328,000 electric vehicles in 2021, an increase of 23% over 2020, and is worth 13.7 billion euros (equivalent to US$13.2 billion). China, the world's largest electric vehicle producer, sold 2.9 million vehicles.
German Chancellor Olaf Scholz (Olaf Scholz) has set a grand goal of delivering 15 million electric vehicles by 2030.Volkswagen Group, Germany's largest automaker, is planning to build six Gigafactories in Europe.
natural gas is an integral part of achieving these goals. It can be used in processes such as paint drying and plastic forming of parts. The delay in any link means that the vehicle is not completed.
In July this year, Germany formulated a rationing plan for gas-related emergencies - families and hospitals will continue to obtain natural gas, while industries are ranked second, especially those companies that can stop production without being damaged. Philippe Houchois, an analyst at
Jeferies (Jeferies), had previously said that auto factories could be targeted because the risk of reducing production shifts is smaller and the cost is lower than closing steel plants. "It's obvious that cars are not a priority industry in terms of safety. So they can be shut down, while other industries cannot."
As competition from countries such as China intensifies, German auto industry has committed to large-scale investments to speed up the electrification process. Volkswagen Group plans to invest 52 billion euros to electrify its fleet; Mercedes-Benz has allocated 40 billion euros; BMW Group has allocated 30 billion euros.
Most of these investments will come from the profits of these 3 companies. In 2021, all three companies received a considerable amount of funds to produce electric vehicles - a customer group dominated by the middle class used the savings during the lockdown period to rush to buy high-end cars.
BMW Group's pre-tax profit was 16 billion euros, up from 5.2 billion euros a year ago. Mercedes-Benz's pre-tax profit was 15.8 billion euros, up from 6 billion euros a year ago. Volkswagen Group's pre-tax profit was 20 billion euros, up from 11.7 billion euros a year ago.
Now, however, with all kinds of costs from fuel to food and mortgage rates rising, disposable income is drying up quickly – possibly cutting those profits.
Mercedes-Benz purchases natural gas supply through long-term contracts, with the goal of reducing the amount of natural gas used in the paint workshop and using as much as possible with more oil. However, it also warned that the goal of achieving pure electrification by 2030 depends on market conditions.
BMW Group is also reducing natural gas usage and actively preparing.
Hu Qiaos said that if the gas shortage is mild, the impact should be mild. If demand drys up, natural gas may not be enough. If demand and output are both down, that is the worst case. He believes that the automotive industry will be more concerned about the feasibility of the transition to electric vehicles.
"All this happens in the context of rising car prices, and risk will become a vicious cycle, because the traditional practice of auto manufacturers is that internal combustion engine profits provide funds for the transformation to electric vehicles. But if internal combustion engine profits disappear, how can we provide funds for the transformation? Or large-scale reduction in the scale of industry transformation?" Hu Qiaos asked back.
▍Stellantis European factory self-generating
Some people are messy in the wind, and some are calm and gentle. The Stellantis Group's approach is to generate electricity at its European factories to withstand the threat of Russian gas.
September 15, Stellantis Group CEO Tang Weishi (Carlos Tavares) said at the Detroit auto show that European factories have enough space to generate electricity on their own, and Russia's threat of cutting off the European gas supply may make it a worthwhile investment project.
Stellantis Group is preparing a strong energy use reduction plan. "We will make a lot of investments to produce the energy we need on site." Tang Weishi said that part of his inspiration was inspired by the way Japanese automakers responded to the tsunami in 2011. That tsunami destroyed power and supply chains in most parts of Japan.
In fact, the threat of Russia stopping natural gas to Europe is "another factor of chaos." In addition to the threat of rotating power outages in Europe, automakers face many challenges in supplying parts due to the epidemic and the conflict between Russia and Ukraine.
As of now, Stellantis Group is actively responding to these problems.Production in Europe has not yet been affected by the disruption in Russian gas supply, although costs have risen. But if the energy crisis becomes severe, the company may have to put work on off-peak hours, when energy is cheaper.
autonomous power generation plan may be decided in the next few days, which implies that the specific plan has not been determined yet. Tang Weishi seems to be dissatisfied with deeper concerns related to this issue, as the Stellantis factory has room to install more solar arrays.
"As the saying goes, don't worry about debt. When adding chaos to chaos, you can't see how big the difference is. In the past few years, our industry has been dealing with these chaos, including health-related chaos, supply chain related chaos, regulatory chaos, and now it is energy chaos." Tang Weishi said lightly.
(Some of the content of this article is integrated with Automotive News, Reuters, Bloomberg, Carscoops, Techgoing, and Zox News reports, and some pictures are from the Internet)
