The woes of the German automobile giant Volkswagen (VW) offer a lesson that applies beyond Germany and Europe: resist the green transition at your own peril – as laggards will pay a heavy price. Paul Hockenos reports.

When Volkswagen, a cornerstone of Germany’s export economy and Europe’s largest industrial employer, announced on 4 September 2024 that it is considering plant closures and layoffs – for the first time in its 87-year history – shudders of angst reverberated across the country and beyond. The multinational Volkswagen, a company that includes Audi, Lamborghini and Porsche, is such a symbol of consistency and made-in-Germany reliability that the brand is synonymous with the country’s USD 1.6 trillion export tally, third worldwide behind only the US and China.

In October, it confirmed the closure of three plants in Germany, as well as the Belgian Audi plant in Brussels. And more turbulent times are ahead, cry its chiefs, because VW’s expensive luxury models aren’t selling like they have been and China’s domination of the world’s surging electric vehicle market is set only to become greater as ever-cheaper, more-appealing Chinese models appear on the market. This is why VW is scrapping a longstanding job protection pledge that barred employee layoffs through 2029. High labour and energy costs are the culprit, the company bosses claim.

But VW’s rationale is disingenuous: yes, the company and other European stragglers are in for a rough ride, but the cause isn’t unproductive workers or Europe’s environmental sustainability agenda pushing energy prices up. Rather, the guiltiest party is VW’s management that has fought tooth and nail against the transition away from heavy-set fossil fuel burners. Its rear-guard battling has left it so far behind in terms of digitalization, productivity and innovation that it sees no light at the end of the tunnel.

This is because Volkswagen’s take on the climate crisis and its consequences is retrograde – and has been for some time. ’Dieselgate’ and ’emissionsgate’ were the monikers assigned to the company’s underhanded manipulation of its diesel vehicles’ emissions levels. In 2015, the US Environmental Protection Agency caught the German firm red-handed programming its diesel engines to circumvent laboratory testing of nitrogen oxide levels. The VWs’ emission of the greenhouse gas, which contributes significantly to smog and global warming, was 40 times more than what the inaccurate laboratory tests found.

In other words: Volkswagen risked cheating rather than fabricate more advanced motors that met clean-air targets. And this cost the company dearly, not only in terms of tarnished reputation. The scandal set the company back USD 33.3 billion in fines and settlements.

Despite this immense sum, for which it had only itself to blame and not its factory workers or China, the huge profits that VW racked up over the past 15 years – the three largest from 2021 to 2023 – could have, and should have, been more appropriately invested in smaller, highly efficient gas burners and its electric vehicle (EV) line.

VW and other carmakers’ stubborn commitment to the past disregards the studies of independent think tanks, which argue that there is money to be made in climate-friendly motor cars. After all, by 2040, around three-quarters of all newly sold passenger cars worldwide will be equipped with battery-electric drive systems, according to Bloomberg NEF. The International Energy Agency (IEA) calculates that the global EV fleet is set to grow twelve-fold by 2035.

The Berlin think tank Agora Verkehrswende even argues that ‘vehicle manufacturers cannot significantly increase their profits by 2040 unless they focus on transformation to electromobility today’. It calculates that European automakers can increase profits with electromobility by about 15 per cent if they begin today; and they could double that number were governments to step in more resolutely, argues the study.

By government assistance, the think tank means, among other things, the kind of incentives that the Biden administration’s Inflation Reduction Act provides for US-made EVs: worth up to USD 7,500 per vehicle. This year, Germany, for budgetary reasons, cancelled its EUR 4,500 subsidy on battery electrics. Certainly, past governments underperformed on incentivizing digitalization, recruiting skilled foreign labour and investing in research and development.

Agora Verkehrswende’s upbeat market forecast is also, not coincidentally, a giant plus for climate protection, as road vehicles are responsible for 12 per cent of greenhouse gases worldwide. In order to hit climate neutrality by 2050, our dirty transportation has to be cleaned up significantly. Certainly, companies like VW that have been so central to the fossil fuel era – and thus the blight of climate breakdown – could exert themselves more to mend their ways in the longer-term interests of humanity.

But Volkswagen remains intent on doing business the way it always has, and the Dieselgate scandal obviously didn’t change that. The company lobbied hard to stop the EU’s slapping of tariffs on Chinese EVs designed for the European market. The BYD Seagull costs just USD 10,000 in China, in contrast to VW’s lowest priced plug-in: the ID.3, which goes for USD 16,600 in China. In light of a comprehensive EU study that documented Chinese state support for BYD, the bloc instituted a 17 per cent tariff on all BYD cars to even the playing field (a little).

But Volkswagen screamed to cancel it! Why? Because China is its biggest market for its good old premium gas burners and it didn’t want retaliatory tariffs put on its exports. Volkswagen was willing to forgo the EU market for electrics in favour of the Chinese market for luxury models. As far as it is concerned, this is where the money is – because that’s where it’s always been.

It was the bulk of Volkswagen’s 2023 record-high EUR 322 billion in sales, which caused net profit to rise 13 per cent compared to the previous banner year of 2022, to EUR 17.9 billion (USD 19.6 billion). And it is also the source of VW’s new CEO Oliver Blume’s annual salary of EUR 10 million – which is surely out of line if workers are being laid off and climate goals thrown under the bus.

The problem isn’t German workers but Volkswagen’s judgement and inferior products: even its lowest cost EV isn’t close to the smart, minimalist design of the BYD Seagull. In defiance of all signals, Volkswagen remained backing the wrong horse for too long, so now it wants to lay off workers. It won’t help.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.