VW gears up for first production closure in Germany in its 88-year history

Volkswagen will stop manufacturing vehicles at its site in Dresden after Tuesday, marking the first time in the carmaker’s 88-year history that it will close production at a site in Germany.

The closure of the plant’s production line comes as Europe’s largest auto manufacturer is under cash flow pressure as a result of weak China sales and demand in Europe as well as US tariffs weighing on sales in America.

Volkswagen has been wrestling with the allocation of its investment budget of about €160bn over the coming five years, with a longer lifespan expected for petrol-engine cars. The rolling budget, which is updated annually, has been cut over recent years. For the period from 2023 to 2027 the equivalent figure was €180bn.

The automaker’s chief financial officer Arno Antlitz suggested in October that its net cash flow for 2025, which had previously been forecast to be close to zero, could be slightly positive. However, analysts said the carmaker would continue to be under pressure.

“There’s certainly pressure on the cash flow in 2026,” said Bernstein analyst Stephen Reitman. He noted that the auto group was looking for ways to reduce spending and boost operating profits.

Volkswagen was facing “widespread” challenges, with the expected longer lifetime for fossil fuel-burning engines requiring new investment, Reitman said. “You have to look at new generations of gasoline technologies,” he added.

Moritz Kronenberger, a portfolio manager at Union Investment, said some projects would need to be axed from Volkswagen’s spending plans. For the company to meet its investment target, “other ideas and projects must be removed from the plan,” he said.

Dresden has produced fewer than 200,000 vehicles since production started in 2002, or less than half the annual output of VW’s central factory in Wolfsburg.

The move brings Volkswagen a small step forward in its plans to reduce capacity in Germany. The changes are part of a deal agreed with unions last year that will also lead to 35,000 job cuts at the VW brand in Germany.

Brand chief Thomas Schäfer said this month that the decision to stop production at the Dresden site had not been taken “lightly”, but that “from an economic perspective it was essential”.

The plant was intended as a showcase for Volkswagen’s engineering prowess and was first tasked with the assembly of the high-end VW Phaeton. After the Phaeton was discontinued in 2016, the Dresden site became a symbol of Volkswagen’s electrification efforts, most recently producing the battery-powered ID.3.

The site will be rented out to the Technical University of Dresden to establish a research campus for the development of artificial intelligence, robotics and chips.

Volkswagen, together with the university, has pledged to invest €50mn over the next seven years into the project, while the automaker has said it will continue to use the facility to deliver cars to customers and as a tourist attraction.