What happened when a German car factory went all-electric

Zwickau, a city in eastern Germany, may not be as famous as Detroit, but its economy has revolved around internal combustion engines since August Horch founded Audi here in the early 20th century.

So when Volkswagen announced in 2018 that it would convert its Zwickau factory, the area's largest private employer, to produce exclusively electric vehicles, it was a big deal.

“A lot of people were skeptical,” said Michael Fuchs, who has worked at the factory for more than a quarter century. They wondered, “What will happen?” He said.

Volkswagen has closed the assembly lines of its popular Golf hatchbacks and converted the factory, which has its own motorway exit, to produce six electric models. The renovated plant can produce one car per minute, shipping it via train.

This was a rare case of a major automotive plant completely switching from internal combustion to battery power, making Zwickau a case study for a big question facing the automotive industry.

Electric vehicles have far fewer parts than gasoline cars: no radiators, exhaust pipes, fuel tanks, ventilation belts or complicated gearboxes. As a result, many auto workers, executives, and politicians speculated that such cars would require fewer workers, leading to mass unemployment in industrial cities around the world.

Zwickau, where more than 10,000 people work for Volkswagen and tens of thousands more for suppliers, appears to have avoided those terrible consequences. Employment has not plummeted and suppliers of combustion vehicle parts have not been forced into bankruptcy en masse. His experience offers some hopeful lessons for other places that depend on the auto industry.

Yet the people of Zwickau, with its immaculate but sleepy centre, are still uneasy.

While Zwickau's experience suggests that the conversion to electric vehicles will not in itself lead to economic misery, this and other new technologies are shaking up the industry in ways that could still be very painful for established companies and their workers.

One big change already visible in Germany and the rest of Europe is the rapid growth of young Chinese electric car makers like BYD and SAIC, which are increasingly luring customers away from established rivals like Volkswagen, the world's second-largest automaker. world after Toyota.

“The question is: how much will mobility change overall?” said Thomas Knabel, director of the Zwickau branch of IG Metall, the union representing Volkswagen workers. “Will Volkswagen still be present in the future?”

Europe's best-selling electric car is Tesla's Model Y sport-utility vehicle, built in a factory about 145 miles north of Zwickau, near Berlin. According to Schmidt Automotive Research, Volkswagen sold less than half of its equivalent SUV, the ID.4, last year.

The disappointing sales have prompted Volkswagen to cut shifts at one of its two assembly lines in Zwickau, where the company produces the ID.4, ID.5, two Audi models and two small electric cars. The decision illustrated the disadvantages of focusing on electric vehicles. Other established automakers have hedged their bets, producing electric vehicles and combustion cars in the same factories, allowing them to adapt to sales fluctuations.

“It's a much more ambitious project than anything I know of in North America,” said Ian Greer, a research professor at Cornell University who has studied the region around Zwickau. “VW took a much bigger risk.”

With the factory working below capacity, some people in Zwickau are wondering whether Volkswagen's electric vehicles are attractive enough.

Max Jankowsky, president of the Regional Chamber of Commerce, said he was disappointed not to have seen any Volkswagens on a recent trip to Dubai. “It was just Tesla, Tesla, Tesla,” said Jankowsky, who is also president of a company that makes cast iron parts for Volkswagen suppliers and other manufacturers.

Volkswagen executives say they expect sales to rebound this year as it begins selling new models, including a station wagon and a van, targeting market segments where Tesla doesn't operate.

“We are aware of our current challenges and are addressing them rigorously,” Oliver Blume, Volkswagen's chief executive, said in a statement last month.

At least in the short term, the pain caused to the local economy by the redevelopment of the Zwickau factory has been surprisingly light, local officials, business owners and workers' representatives say.

Increased demand for workers to produce electronic components has largely compensated for job losses in production lines that produced combustion car components, according to a study by supplier group AMZ Saxony.

“All in all,” said Dirk Vogel, CEO of AMZ, “not much happened.”

Volkswagen, local businesses and officials coordinated an effort to prepare workers and businesses, mitigating the impact.

The automaker has expanded its training institute in Zwickau to teach employees about electric vehicle technology. To drum up enthusiasm, Volkswagen let workers borrow battery-powered cars for a few days. The West Saxon University of Applied Sciences in Zwickau, a state college that already had a strong focus on the automotive industry, has expanded courses related to electric vehicle technology.

Suppliers have developed new electric vehicle components to replace products that are at risk of becoming obsolete. Eberspächer, a German supplier that has a plant 60 miles east of Zwickau, near Dresden, has begun offering temperature control systems for electric vehicles in addition to emissions systems for conventional cars.

Some suppliers have suffered. GKN Driveline, which makes driveshafts not needed in most electric cars, is closing a factory in Zwickau and moving production to Hungary. But GKN did not supply Volkswagen, and the closure appears to be a reaction to broader industry trends and German labor costs. GKN did not respond to requests for comment.

The new technology has also created jobs, including 175 at FDTech, based in the nearby city of Chemnitz. The company, partly owned by Volkswagen, is one of five companies in the area developing autonomous driving technologies.

Zwickau benefits from unique luck. Many local suppliers produce seats, dashboards, paint equipment or other products that electric vehicles need as much as gasoline cars.

Due to a shortage of electricians, engineers and other skilled workers, the unemployment rate in the state of Saxony, which includes Zwickau, has increased only modestly. In March it was 6.6% amid a general economic slowdown, compared to 6.3% a year earlier.

“There will be suppliers that disappear,” said Karsten Schulze, chief executive of FDTech. “But skilled workers will immediately be sought elsewhere.”

Volkswagen workers had some control because German law requires that they be consulted on changes that affect working conditions. The IG Metall union obtained a promise from the company not to fire any full-time employees in Zwickau until at least 2030. However, the guarantee does not apply to temporary workers and the company fired 270 of them when their contracts expired.

In the United States, unions are relatively strong in the Midwest and East, but most auto factories in the South are not unionized. The United Automobile Workers is trying to change that. But even if the union succeeds, American companies will have no obligation to consult workers about changes that will affect their jobs, or to retrain them for new jobs. And there is no guarantee that new jobs in battery manufacturing, for example, will pay as well as jobs in factories where cars are assembled.

Residents proudly note that Zwickau has survived many upheavals. After Germany's defeat in World War II, the Soviet occupiers confiscated Audi's production equipment. The automaker moved to Bavaria and was later acquired by Volkswagen.

The communist government that ruled East Germany converted the Zwickau factory to produce no-frills Trabant vehicles. The cars emitted blue exhaust and had plastic bodies due to the steel shortage. They could not compete with Western cars after the reunification of Germany in 1991. Thousands of Trabant workers lost their jobs. At the end of the 1990s, unemployment in the region exceeded 20%.

After reunification, Volkswagen acquired the Zwickau plant and gradually expanded it into one of the company's largest production sites. The conversion to electric cars was so important that Angela Merkel, the then German chancellor, attended an unveiling ceremony in 2019, when the first battery-powered model rolled off the assembly line.

Not everyone in Zwickau is a fan of electric cars. The far-right Alternative for Germany party, which has 11 of the 48 seats in Zwickau's city council, complained that Germans are being forced to buy electric vehicles, echoing comments by former President Donald J. Trump and of other Republicans.

The national government, led by Chancellor Olaf Scholz, a Social Democrat, angered many in Zwickau when it sharply cut subsidies for electric vehicles last year to deal with a budget crisis. Electric vehicle sales in Germany slumped 14% in the first three months of the year, although they still accounted for 12% of new cars.

However, few people in Zwickau are pushing for Volkswagen to go back to building petrol cars.

“With the transition to a new technology, the question is always: are you first or last?” said Constance Arndt, the mayor of Zwickau. “I think it's always better to be first.”

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