Volkswagen AG is cutting temporary workers at its main electric-vehicle factory in Germany after the phaseout of a subsidy in the country caused demand for its EVs to drop.

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The manufacturer is letting go 269 people at the Zwickau plant when their 12-month contracts expire in the near future, VW said Thursday. The company expects it will have to adjust the shift schedule at the facility near the Czech border.

The fate of around 2,000 additional temporary staff remains uncertain, according to people familiar with the matter, who declined to be named because a final decision hasn’t been made yet. Corporate orders that accounted for some 70 per cent of VW-branded EVs made in Zwickau have been plummeting since aid for electric company cars expired this month, one of the people said.

Volkswagen is having a tough time selling enough mostly made-in-Germany electric cars to challenge Tesla Inc.’s global dominance. Lacklustre economic growth as well as higher energy, living and borrowing costs in Europe have weighed on demand for its ID fleet of EVs.

The German manufacturer has invested €1.2 billion (US$1.3 billion) at Zwickau in recent years and hired more than 3,000 staff, most of them temporary, to meet expected EV demand. But falling corporate orders have clouded the prospects for workers at the site, which makes the ID.3, ID.4 and ID.5 models.

Volkswagen declined 1.8 per cent as of 1:30 p.m. in Frankfurt. The shares are down around eight per cent this year.

The automaker is following Tesla, BMW AG and others in exporting an EV to Europe from China, where production costs are lower. Its Cupra brand has announced plans to produce the Tavascan SUV at a factory in Anhui. Built on the same hardware and software platforms as the ID series, the model is due to hit the European market in 2024.

It remains unclear how the competitive landscape for Chinese-made cars will develop after the European Union on Wednesday said it’s launching an investigation into Chinese EV subsidies to ward off a flood of cheap imports.

Germany is also gradually reducing support for private buyers over the coming months, raising the cost of the ID models that are already more expensive than similar offerings from Stellantis NV and Renault SA.

DPA first reported on the potential job cuts. VW had planned to eventually churn out as many as 330,000 vehicles annually in Zwickau, making it one of Europe’s largest such factories.

“Volkswagen remains 100% convinced of the path to electric mobility,” a spokesperson for the carmaker said. “The Zwickau location plays a central role in this.”

— With assistance from Craig Trudell.

Bloomberg.com