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

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Volkswagen will stop making cars at its Dresden site after Tuesday, marking the first time in the automaker’s 88-year history that it will shut down production in Germany.

The closure of the factory’s production line comes at a time when the largest car manufacturer in Europe is under cash flow pressure as a result of weak sales in China and demand in Europe, in addition to US tariffs affecting sales in America.

Volkswagen is struggling to allocate its investment budget of about 160 billion euros over the next five years, with the expectation of a longer life for cars powered by gasoline engines. The rolling budget, which is updated annually, has been reduced in recent years. For the period from 2023 to 2027 the equivalent figure was €180 billion.

The automaker’s CFO Arno Antlitz suggested in October that 2025 net cash flow, which was previously expected to be close to zero, could be somewhat positive. However, analysts said the automaker will continue to see more pressure.

“There is definitely pressure on cash flow in 2026,” said Steven Reitman, an analyst at Bernstein. He noted that the automotive group was looking for ways to reduce spending and boost operating profits.

Reitmann said VW faces “wide-ranging” challenges, as the longer life expectancy of fossil fuel-burning engines requires new investment. “You have to look at new generations of gasoline technologies,” he added.

Moritz Kronenberger, portfolio manager of Union Investment, said some projects would need to be excluded from Volkswagen’s spending plans. He added that for Volkswagen to achieve its investment target, “other ideas and projects must be removed from the plan.”

Dresden has produced fewer than 200,000 cars since production began in 2002, or less than half the annual output of Volkswagen’s central plant in Wolfsburg.

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

Thomas Schaefer, Volkswagen’s brand president, said this month that the decision to close production was not taken “easily”, but that “from an economic perspective it was necessary.”

The factory was intended to be a showcase for Volkswagen’s engineering prowess, and was first commissioned to assemble the high-end Volkswagen Phaeton. After ceasing production of the Phaeton in 2016, the Dresden site has become a symbol of VW’s electrification efforts, most recently producing the battery-powered ID.3.

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

Volkswagen, in cooperation with the university, has pledged to invest €50 million over the next seven years in the project, while the car giant said it will continue to use the facility to deliver cars to customers and as a tourist attraction.