The gas crisis, Volkswagen’s extreme hypothesis: moving production out of Germany and Eastern Europe

There Volkswagen is considering an extreme hypothesis in the event of massive cuts in gas supplies: moving increasing portions of its production activities outside the European countries most linked to its industrial presence, but more penalized by the current energy crisis triggered by the war in Ukraine: namely Germany, the Czech Republic and Slovakia. “Among the medium-term alternatives, we are focusing on greater localization of supplies, a transfer of production capacity and purely technical solutions,” said the purchasing manager, Geng Wu, in a note taken from Bloomberg. According to the manager , the ongoing assessments are “similar to those that have already become common practice in the context of challenges related to shortage of semiconductors and other recent supply chain disruptions ”.

The winter unknown. The alarm from Wolfsburg is just the latest sign of how much the current gas crisis is putting the European industrial landscape at risk, especially with further negative developments over the next winter season. Not surprisingly, several European countries have taken action by increasing stocks. Italy and, precisely, Germany are among the nations of the Old Continent most dependent on Russian gas and to counter the lack of supplies they have increased their stocks, reaching a filling rate of 90% well in advance of years passed and thus reducing fears of more serious shortages during the cold months. This is a problem that risks making itself felt especially from next spring with the possible total stop to Russian supplies. Uncertainty has already impacted the planning of many companies. Bloomberg cites, for example, the CEO of the plastics multinational Covestro: while not foreseeing supply problems for the winter, the company has blocked all investments in Europe due to the increase in energy tariffs and has moved its focus on growing and low-cost markets mainly in Asia.

We look to Southern and Northern Europe. As for Volkswagen, the possible transfer of production could determine great benefits for other European countries that host important regasification terminals and automotive plants of the same German group, such as Spain, Portugal or Belgium. From Wolfsburg they cited southwestern Europe or the coastal areas of northern Europe, with better access to liquefied natural gas loads by sea, among the areas of possible transfer of industrial activities. Volkswagen, while claiming to have made “the best possible preparations” to address any gas shortages, also said it was concerned about the possible effect of tariff increases on its suppliers. In this regard, the head of external relations Thomas Steg asked for an intervention to avoid possible devastating consequences: “Even politicians must curb the current uncontrolled boom in gas and electricity prices. Otherwise, small and medium-sized enterprises, in particularly those with high energy intensity, will have major problems and will have to reduce or stop production ”.

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