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Volkswagen Slovakia is laying off 3,000 people by June as the parent company shifts its focus to electric vehicles. The domestic economy is heavily dependent on car production, and EU emissions targets mean big changes.
Volkswagen Slovakia, the central European country's biggest private sector employer, recently announced that it would lay off 3,000 workers at its plant in Bratislava by June.
Slovakia, home to VW, Kia Motors, PSA Peugeot Citroen and Jaguar Land Rover car plants, is heavily dependent on car production. The sector generates 300,000 jobs, making it by far the largest employer in the country of 5.4 million people.
At the end of 2017, VW Slovakia employed 13,700 people making Touareg SUVs, Audi Q7s and Porsche Cayennes for the US market. It produced its one millionth Touareg on March 28. The plant also makes the Audi Q8, Porsche Cayenne Coupe, Volkswagen up!, Volkswagen e-up!, SEAT Mii, and Skoda Citigo.
There are no concrete plans for the plant, the management of the group said last year. But indications are the company is already scaling down production as it shifts to e-car production to meet EU emission targets.
In January, it said it would reduce the number of shifts at the Bratislava plant and since March no longer produces SUVs at weekends as the four-shift operation was reduced to three. From June, the plant will also reduce shifts from two to one for the production of small vehicles, such as the Skoda Citigo and the Seat Mia.
The company also plans to return 500 workers 'borrowed' from Audi Hungari.
Auto sector greening
The cuts are the product of shifting investment decisions towards greener solutions in the German auto sector, which has faced myriad problems over the last two years.
The European Commission last November targeted emissions cuts in passenger and light commercial vehicles of 30 percent between 2021 and 2030, although did not set legally binding quotas.
The local unit of Kia said recently it had also reduced staff this year due to a 35-percent slump in demand for diesel engines at its factory outside Zilina, northern Slovakia.
Read more: Slovakia at an economic crossroads
VW shifting to electric cars
VW set a target to increase electric vehicle (EV) production by 30 percent by 2025 compared to 2018.
By 2023 it plans to save about €6 billion ($7.1 billion) thanks to cost cutting measures across all its plants, with the savings to be invested in electromobility.
VW aims manufacture almost 70 new electric models instead of the planned 50. It expects to produce 22 million electric vehicles in total by 2028.
EVs are to be manufactured in only five plants in Europe, two of which are confirmed, namely at Zwickau and Emden, in Germany.
Bratislava on the e-car shortlist?
The company has also invested over €2 billion in the Slovak car plant in recent years and had revenues in 2017 of €7.5 billion and net profit of €177 million.
But the Bratislava plant does not know what it will be producing when the cycle of current models, which lasts between five and seven years, ends in 2022, analysts said.
Slovakia is the only European country manufacturing VW's electric car, the e-Up! since 2013. Michal Ambrovic told the French news agency AFP the e-up! model was VW's "first-ever mass-produced electric vehicle."
But this doesn't guarantee it will continue to do so.
Cars drive Slovakian economy
VW is important for the Slovak economy, contributing one percent of its GDP with the car industry as a whole making up 13 percent.
Production at Slovakia's four car factories rose to 1.08 million vehicles in 2018 and is expected to reach a 1.15 million this year, cementing its position as the world's biggest per capita car producer, the country's car association said last month.
The carmaking sector has a 44 percent share of Slovakia's total industrial production.
The direct and indirect value added from car exports to the US was between 0.5 percent and 0.9 percent of total output in Slovakia, Robert Stehrer, a trade economist at the Vienna Institute for International Economic Studies, has calculated.
Alexander Matusek, president of the Slovak Automotive Industry Association (ZAP), said earlier this year that Slovakia needs to adjust. "The automotive industry will face significant changes in the near future. This year will be extremely demanding," he said.
Matusek pointed to apart pressure to make cars with fewer emissions, a shortage of qualified labor, low predictability of the business environment and low levels of R&D.
But there is also some anger at the EU's new tone. "The environmentalists and other NGOs often have unrealistic expectations and demands, while they do not bear any responsibility either for declarations, or for their execution," Jan Pribula, Secretary General of ZAP, said recently.