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Volkswagen May Move Production Out of Eastern Europe If Gas Shortage Continues

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(Bloomberg) — Volkswagen AG could shift production out of Germany and eastern Europe if a shortage of natural gas persists, the latest sign that the energy crisis unleashed by Russia’s invasion of Ukraine threatens to upend Europe’s industrial landscape.

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Volkswagen, Europe’s biggest carmaker, said Thursday that moving production was one of the options available for it in the medium-term if gas shortages last much beyond this winter. The carmaker has major factories in Germany, the Czech Republic and Slovakia, which are among the European countries most reliant on Russian gas. 

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“As mid-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 challenges related to semiconductor shortages and other recent supply chain disruptions,” Geng Wu, Volkswagen’s head of purchasing, said in a statement. 

Russia’s decision to throttle gas supplies to Europe has raised concerns that Germany might be forced to ration its fuel. Recent news that gas storage levels hit 90% ahead of schedule has soothed fears of acute shortages this winter, but Germany faces a challenge in replenishing depleted reserves next summer without contributions from Russia.

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German plastics maker Covestro AG isn’t expecting a gas shortage this winter but at the same time won’t make investments to grow in Europe because of the region’s high energy costs, according to Chief Executive Officer Markus Steilemann. Growth markets are mainly in Asia, where prices are significantly lower, he said Thursday at a climate conference in Berlin.

Southwestern Europe or coastal zones of northern Europe, both of which have better access to seaborne liquefied natural gas cargoes, could be the beneficiaries of any production shift, a Volkswagen spokesman said by phone. The Volkswagen group already operates car factories in Portugal, Spain and Belgium, countries that host LNG terminals.

While saying it had made the “best possible” preparations for gas shortages for this winter, Volkswagen said it was concerned about the effect high gas prices could have on suppliers. 

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

(Updates with Covestro CEO comments in fifth paragraph.)


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