Automotive giant Volkswagen is shutting down plants in Germany and cutting thousands of jobs, but pledged Tuesday it will open its $7 billion St. Thomas plant on time, with a full workforce.

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Automotive giant Volkswagen is shutting down plants in Germany and cutting thousands of jobs, but pledged Tuesday it will open its $7-billion St. Thomas plant on time, with a full workforce.

The automaker, among global leaders in sales, is suffering a downturn in its business due largely to competition from China in the electric vehicle market.

But its Southwestern Ontario plant, operating under the PowerCo brand, is an ocean away from such troubles. The plant is expected to employ more than 3,000 and make EV batteries for vehicles assembled in the U.S.

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“We continue to aim for the first cells in 2027,” Jeffrey Lewis, spokesperson for PowerCo in St. Thomas, said of the batteries the plant will make.

“We recently surpassed 100 employees and remain in hiring mode.”

VW is making unprecedented cuts in Europe as the company seeks to cut wage costs by 10 per cent in a workforce that totals more than 140,000, reported Bloomberg, a business publication. That news prompted 25,000 workers to protest Monday at the company’s headquarters in Wolfsburg, Germany.

“Automakers have gone big into EVs and government policies are supporting that, but behind the scenes, China was making these vehicles. While the cost of  EVs is higher and higher, China is selling them for $15,000,” said Rebekah Young, an economist with Scotiabank who studies the EV sector.

“There is huge uncertainty on the rate of transition to EVs. There are a lot of headwinds, a lot of wage pressures for all automakers,” she said.

“Companies are feeling pressure on the financial side.”

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VW’s EV strategy, which has driven the Ontario investment, has been cited for the automaker’s woes. Analysts have suggested VW does not have enough vehicle selection, and its prices are too high especially compared to less costly Chinese EVs.

Volkswagen last month reported its profit margin will be 5.6 per cent in 2024, down from 6.5 per cent previously. The company said it had expected an increase of up to five per cent in sales but they are expected to fall by 0.7 per cent to 320 billion euros (Cdn$482 billion).

The automaker is selling 500,000 fewer cars in Europe annually compared with pre-pandemic levels.

VW chief executive Thomas Schäfer has said costs are 25 to 50 per cent too high. Volkswagen shares have fallen by 19 per cent this year. 

“If sticker prices don’t come down substantially from today’s make-and-model distorted highs in North America, only those with deep pockets will be able to afford them tomorrow,” said an analysis on the EV market by Young and John Fanjoy for Scotiabank.

“Regional automakers (must) see the writing on the wall and evolve their offerings across the price spectrum over time.”

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China leads the world in EV sales, with six million vehicles sold in 2022, about 60 per cent of the world market, compared to 25 per cent for Europe and 10 per cent for the U.S.

Volkswagen’s St. Thomas plant will supply it with batteries for vehicles being manufactured at its plants in Tennessee making the ID.4 and in South Carolina making the Scout vehicle. 

As for other EV investments in Ontario, LG Energy Solution, a South Korean battery maker, is partnering with automaker Stellantis to build an EV battery plant in Windsor. Cami Assembly in Ingersoll assembles EV batteries on site as well as two fully electric cargo vans, for GM.

Other automakers have announced EV investments that will be made in Ontario. 

ndebono@postmedia.com

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