VW could shift production due to natural gas cut in Russia

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Volkswagen AG is exploring ways to counter a shortage of natural gas, including moving production around its network of global facilities, signaling how the energy crisis triggered by Russia’s invasion of Ukraine threatens to upend Europe’s industrial landscape.

Volkswagen, Europe’s biggest automaker, said on Thursday that repurposing some of its production was one of the options available in the medium term if gas shortages last well beyond this winter. The company has major plants in Germany, the Czech Republic and Slovakia, which are among the European countries most dependent on Russian gas, as well as facilities in southern Europe that source energy elsewhere.

“As medium-term alternatives, we are focusing on greater localization, relocation of manufacturing capacity or technical alternatives, similar to what is already common practice in the context of the challenges associated with shortages of semi- -drivers and other recent supply chain disruptions,” Geng Wu, Volkswagen’s chief purchasing officer, said in a statement.

Russia’s decision to limit gas supplies to Europe has raised fears that Germany may be forced to ration its fuel. Recent news that gas storage levels have reached 90% earlier than expected has eased fears of acute shortages this winter, but Germany faces the challenge of replenishing its depleted reserves next summer without contributions from the Russia.

Southwest Europe or the coastal areas of Northern Europe, both of which have better access to maritime shipments of liquefied natural gas, could be the beneficiaries of any production changes, a spokesperson for Volkswagen by phone. The Volkswagen group already operates car factories in Portugal, Spain and Belgium, countries that are home to LNG terminals.

Barriers at work

To be sure, any major shift in production out of Europe’s largest economy would face significant obstacles. VW has some 295,000 employees in Germany and worker representatives make up about half of the company’s 20 supervisory board members. Any changes in production would likely involve a limited number of vehicles rather than wholesale plant closures.

While the gas supply to VW’s factories is currently secure, the company has identified potential savings at its European sites to reduce gas consumption by a “double-digit percentage”, said Michael Heinemann, chief executive of VW. VW’s power plant unit.

Still, the automaker has expressed concern about the effect high gasoline prices could have on its suppliers.

“Policies must also curb the currently uncontrolled explosion in gas and electricity prices,” said Thomas Steg, the company’s head of external relations. “Otherwise, energy-intensive small and medium-sized enterprises in particular will have major problems in the supply chain and will have to reduce or stop production.”

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