London (CNN) — Volkswagen took a sizeable knock to its profits during the second quarter as it considers cutting tens of thousands of jobs – part of its attempt to better compete against its Chinese rivals.
The German automaker said it made €3.5 billion ($4 billion) in operating profit in the three months to the end of June, down almost 10% from the same period last year. It also slashed revenue expectations for the current financial year from a rise of up to 3% to a decline of up to 3%.
Volkswagen said group sales fell 8.6% in the second quarter to just under 2.1 million vehicles.
“The environment for the automotive industry remains extremely challenging: geopolitical crises, trade conflicts, high regulatory requirements, volatile markets and intensified competition,” CEO Oliver Blume said in a statement.
Shares in Volkswagen Group, which also owns Skoda and Audi, have tumbled more than 30% over the past 12 months and were trading down almost 2% early afternoon local time on Friday.
Germany’s biggest automaker is planning a massive restructuring and cost-cutting program in response to intensifying competition from Chinese electric vehicle makers and higher tariffs on its exports to the United States.
The cuts take effect on Monday, June 29.
In a memo to staff earlier this month, Blume described the program as “the most comprehensive realignment in the company’s history” and said US tariffs alone are costing Volkswagen as much as €5 billion ($5.7 billion) a year.
Job cuts loom
Volkswagen employs about 650,000 people globally and had already announced plans to cut 50,000 jobs in Germany by 2030. In his July memo, Blume said the company is considering axing a further 50,000 roles globally and closing four factories in Germany.
“The headcount across the (firm) has grown over the decades to a scale that is no longer sustainable today,” Blume wrote.
IG Metall, Germany’s biggest labor union, has vowed to fight the job cuts, saying any such move would flout an agreement it struck with Volkswagen in 2024 that ruled out plant closures and compulsory redundancies.
In a statement, Volkswagen said the restructuring is part of a broader effort at its core brand aimed at improving performance and reducing costs worldwide.
“Tens of thousands of employees are learning about their own threatened future from newspaper reports, while inside the company no one has told them,” Jan Mentrup, the union’s spokesperson for Volkswagen workers, said in a statement to CNN on Thursday.
Analysts say big changes are needed if Volkswagen is to properly compete with Chinese EV makers, which typically benefit from lower labor costs.
The company plans to shift its focus from the EV to the second-generation Atlas.
Mark Hogan, a senior analyst at GlobalData, a data analytics company, said China’s newcomer brands were also “extremely agile” and able to bring new EVs to market much more rapidly than incumbents.
“It’s a very volatile time and there’s no such thing as too big to fail anymore.”
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