The Volkswagen Group is exploring a counterintuitive strategy to rescue its embattled German factories: manufacturing Chinese-designed electric vehicles on European soil, potentially turning underutilized production lines into assembly hubs for models co-developed with its partner Xpeng.
The proposal marks a dramatic pivot for the 87-year-old automaker, which plans to slash up to 100,000 jobs worldwide and cut its model lineup by 50% by 2028 as it grapples with collapsing profit margins, weak electric vehicle demand in Europe, and fierce competition from Chinese manufacturers who control the battery supply chain from mine to motor.
Why This Matters:
• Four German factories face closure between 2031 and 2034 (Hanover, Emden, Zwickau, and Audi's Neckarsulm plant), threatening tens of thousands of jobs.
• Volkswagen's supervisory board will discuss the China production plan this month, with a feasibility study already underway.
• The move could reshape European automotive manufacturing, signaling that legacy carmakers may need Chinese technology and designs to survive the electric transition.
• Portugal-based investors and expats with exposure to European automotive stocks should monitor this closely—the restructuring represents one of the largest upheavals in the sector's modern history.
The Chinese Gambit: ID.Unyx Models as Factory Lifeline
According to sources cited by British publication Autocar, Volkswagen's leadership is seriously weighing the production of its ID.Unyx range in Europe. This sub-brand, developed primarily for the Chinese market through collaboration with Xpeng, includes the ID.Unyx 07 sedan—a rear-wheel-drive rival to the Tesla Model 3 built on the new China Electrical Architecture (CEA) platform—and the ID.Unyx 08 SUV, which could replace the discontinued Touareg. Both are fully electric.
The newest addition, the ID.Unyx 09, is a high-performance fastback sedan stretching 5,081 mm in length with outputs ranging from 313 hp (rear-wheel drive) to 503 hp (dual-motor all-wheel drive). Equipped with CATL lithium iron phosphate batteries, 21-inch wheels, and optional Brembo calipers, it embodies the aggressive design and cost efficiency that Chinese EV development delivers—at roughly 40% lower development costs than European programs.
CEO Oliver Blume hinted at this possibility in recent months, though he initially stressed that Volkswagen's own platforms would take priority. Now, with factory utilization rates plummeting and the Osnabrück plant set to end passenger car production in 2027, the urgency has intensified. The company aims to reduce annual production capacity from 10 million to approximately 9 million units and cut costs by 20% by 2028.
What This Means for European Manufacturing
The strategy reflects a stark reality: European automakers are adopting the playbook China used two decades ago—learning from competitors through partnerships. Volkswagen is not alone. Stellantis now assembles the Leapmotor T03 in Poland, and Renault has partnered with Geely on hybrid powertrains.
For Volkswagen, allowing Xpeng to use surplus European capacity offers multiple advantages. The Chinese brand's current contract manufacturing with Magna Steyr in Austria is nearing capacity limits due to soaring export volumes. Establishing a second European production site would allow Xpeng to dodge the EU's punishing 30% combined tariff on Chinese-made EVs (20.7% anti-subsidy duties plus 10% standard import duties) while Volkswagen monetizes idled facilities and spreads fixed costs across higher output.
Discussions reportedly extend beyond mere capacity sharing. Xpeng may acquire a Volkswagen factory outright, though concerns about the age and technological suitability of some plants could complicate negotiations. The Zwickau facility, currently producing electric models, is considered a leading candidate.
Impact on Portuguese Stakeholders
For Portugal-based investors tracking European equity markets—particularly those with holdings in Volkswagen AG (XETRA: VOW3) or Porsche AG—continued volatility is likely. The parent group's restructuring carries broad implications for European pension funds and investment portfolios with exposure to automotive stocks.
Beyond investors, the shift affects Portuguese automotive suppliers integrated into European manufacturing networks. Many Portuguese firms supply components to German and broader European auto facilities. A dramatic restructuring of production lines and model portfolios could alter supplier relationships and demand for specific parts. Additionally, Portuguese automotive workers employed in European supply chains—whether directly or through subsidiaries—face uncertainty as the industry consolidates around fewer, higher-volume platforms.
For consumers in Portugal, the long-term implications are noteworthy. As European manufacturers struggle competitively against Chinese brands, the range of affordable EV options available in the Portuguese market may shift. Chinese-manufactured models already compete aggressively on price and features; Volkswagen's decision to incorporate Chinese-designed vehicles into its portfolio signals broader market consolidation where choices could narrow while pricing pressures intensify.
The traditional European car industry is contracting rapidly. The shift toward fewer, higher-volume models built on shared platforms—potentially designed in China—suggests a fundamental realignment of skills, supply chains, and profit centers that will ripple across European economies, including Portugal's.
The Broader European Response to Chinese Competition
Chinese brands have doubled their combined European market share in recent years, reaching approximately 9% of total sales and 14% of the electric vehicle segment, despite tariffs. This surge is driven by vertical integration of the battery supply chain, allowing companies like BYD, Chery, SAIC, and Leapmotor to control costs and innovation cycles in ways legacy manufacturers cannot match without gutting margins.
European policymakers are scrambling to respond. Brussels is weighing a "Made in EU" requirement mandating that 70% of vehicles sold in the EU incorporate 70% locally produced components (excluding batteries) to qualify for subsidies. The proposed Industrial Accelerator Act could make joint ventures and new Chinese factory projects more expensive, though such rules risk backfiring by encouraging Chinese brands to simply absorb tariffs and export directly.
Meanwhile, Volkswagen's competitors face similar pressures. The Stellantis Group is restructuring aggressively, and Ford is reportedly in talks with Geely over the partial sale of its Valencia plant for electrified vehicle production. The common thread: Europe's automotive giants are turning to Chinese partners not out of preference, but necessity.
What Happens Next?
Volkswagen's supervisory board is currently evaluating the China production plan, with no final decision yet locked in. Union resistance remains fierce—IG Metall has organized protests across German plants—and the German government has publicly stated its goal to avoid factory closures, though it offers few concrete tools to prevent them beyond vague pledges to "strengthen competitiveness."
If the Xpeng deal advances, Chinese-designed Volkswagen models could potentially roll off European lines in coming years, assuming regulatory and labor negotiations proceed. The move would represent a significant shift: a Western automotive titan relying on Eastern engineering and cost structures to sustain its home factories and workforce.
For anyone in Portugal tracking the evolution of European industry—whether as investor, employee, supplier, or consumer—the Volkswagen case study illustrates the continent's automotive sector facing profound structural change. European manufacturers are adapting their business models to remain competitive in a market increasingly shaped by Chinese innovation and cost efficiency. How this transition unfolds will influence employment, investment returns, and market conditions across the continent for years to come.
