What does Volkswagen say about the current developments in the Ukraine crisis?
The Volkswagen Group is greatly concerned and dismayed at the news of the war in Ukraine. We hope for a cessation of hostilities and a return to diplomacy, because we are convinced that there can only be a lasting solution to the conflict on the basis of international law.
In view of Russia’s attack on Ukraine, Volkswagen’s Group Board of Management decided at the beginning of March to stop producing vehicles in Russia until further notice. This decision was taken for the Russian production sites at Kaluga and Nizhny Novgorod.
The export of vehicles to Russia was likewise halted at that time.
Volkswagen has taken the decision to largely suspend business activities in Russia as a consequence of the current overall situation and the great uncertainty and upheavals it means. We are keeping a close eye on further developments as part of the task forces we have set up for that purpose.
What impact does Volkswagen believe a lengthy conflict will have on the European economy?
The Volkswagen Group fears that the conflict between Ukraine and Russia will have a serious impact on the whole European economy.
A further, longer-term interruption to global supply chains will result in, among other things, considerable price increases, an energy shortage and an increase in inflation and thus have massive negative effects for European and in particular German companies.
Europe is dependent on imports of raw materials and so there might be long-term bottlenecks that would additionally hit the European economy. Sanctions and counter-sanctions will hit Russia and Europe; the USA and China will be largely unscathed. That is why the Volkswagen Group advocates a united, strong stance by the international community.
Volkswagen is now fully implementing the sanctions that have been imposed. The objective must be to achieve an end to the armed conflict in Ukraine, and in particular stop the suffering of the people in Ukraine, as soon as possible by means of negotiations between the parties on an equal footing.
What is your response to the Russian government’s threat to nationalize the Volkswagen Group’s plants and assets in Russia and put them under external administration?
The Volkswagen Group is following the discussions about expropriations with concern. Volkswagen is suspending the production of vehicles at the Kaluga plant and export of them to Russia until further notice. The reasons for that include the sanctions imposed by the EU, a lack of or severely limited availability of parts from suppliers and logistical challenges as a result of the hostilities.
Please refer to question 8 about the situation regarding contract manufacturing at Nizhny Novgorod.
Our employees at the Kaluga plant remain employed by us, and they will continue to be paid a reasonable portion of their wages as required by law in Russia while our business is suspended. The costs of that will be borne fully by VOLKSWAGEN Group Rus (VGR).
We will also continue to supply spare parts as far as EU sanctions permit and fulfill our service, warranty and payment obligations.
What consequences will the loss of suppliers have for the production of vehicles?
The Volkswagen Group has a global network of more than 40,000 suppliers, including some in Western Ukraine. In particular, we obtain wiring harnesses for vehicles’ electrical systems from suppliers in Ukraine.
The war in Ukraine resulted in temporary plant closures at suppliers and consequently also at the Group’s European production sites, and also caused problems in the logistics chain due to a loss of haulage capacities and long waits at border crossings.
As soon as the war broke out, the Group Board of Management established a crisis team. Alternative production was quickly established so as to ensure that the components in question are supplied, production losses are reduced and the production of wiring harnesses is duplicated at other locations outside Ukraine together with the suppliers.
The Volkswagen Group stands by its suppliers in Ukraine and, as befits a partner, is doing all it can to help the local companies. Production is now almost back to normal levels in Western Ukraine.
The war in Ukraine, the continuing difficult supply situation for semiconductors and the lockdowns in China with their resultant production losses and supply chain problems are causing overlapping effects in procuring parts from suppliers.
What is the personnel situation like at your Russian plant?
In all activities on site, the safety and well-being of our employees has top priority. The degree to which our business activities are impacted in the affected countries is continuously ascertained in a crisis team.
The Group Board of Management takes its responsibility towards the affected employees at Volkswagen Group RUS very seriously. The affected employees at the Kaluga plant (a total of approximately 4,000) will continue to be paid a reasonable portion of their wages as required by law in Russia and the costs of that will be borne by Volkswagen.
At GAZ in Nizhny Novgorod, Volkswagen Group Rus is beginning to offer a balanced benefits package to the approximately 220 employees working directly for VOLKSWAGEN Group Rus who wish to leave the company voluntarily. It includes financial compensation and health insurance until the end of 2022, as well as the provision of personal IT equipment where applicable.
We will continue to analyze the situation and announce next steps accordingly; no further decisions have been made.
What parts of the company belong to Volkswagen Group Rus? What does it import and produce?
VOLKSWAGEN Group Rus LLC is home to the Russian activities of seven brands in the Volkswagen Group: Volkswagen Passenger Cars, Volkswagen Commercial Vehicles, ŠKODA, Audi, Lamborghini, Bentley and Ducati.
The Volkswagen Group sold around 199,000 vehicles in the Russian market in 2021. Around 170,000 vehicles were made at the company’s production sites in 2021: 118,000 units at the Kaluga plant and 52,000 at the Nizhny Novgorod plant (contract manufacturing on behalf of VW Group Rus). The total market share in 2021 was 11.9%. 11,500 vehicles were exported to CIS countries.
What impact will the changes on the gas market have on Volkswagen’s plans?
The announcement of a gas shortage initially means that the Federal Network Agency becomes the “federal load distributor” and that a crisis team at the Federal Ministry for Economic Affairs is tasked with coordinating, instigating and monitoring any further steps and measures.
In the event of an embargo, the Gas SoS Regulation provides for maintaining supplies to protected customers. That also includes, in particular, district heating for households. Supplies from non-Russian sources will be ensured in the event of an embargo.
We are in regular dialog with the relevant departments at the competent authorities, network operators and suppliers so as to be able to assess further developments promptly and derive any necessary measures.
The supply of gas to the plants of Volkswagen AG and the brands in Germany is currently secured. Volkswagen obtains natural gas from the German grid, which is able to cater for current needs in Germany. Accordingly, the supply of natural gas to the plants, power plants and boiler houses is ensured until further notice. It is up to the suppliers to choose the sources from which they procure their natural gas.
We will leverage the switch to new means of energy generation envisaged at the Wolfsburg site to respond flexibly to the possible scenarios. If there is a continued reliable supply of natural gas, heat and power generation will be secured as planned by modern gas turbines. If the necessary gas cannot be supplied without restriction, the site also has the option of continuing to use hard coal as a source of energy and, in a transitional period, to deploy the existing plants to meet the electricity and heat requirements for the plant in Wolfsburg and to supply heat to around 50,000 private households in the city.
Hard coal for the power plants at the Wolfsburg site is always supplied under long-term contracts. For example, the most recent deliveries of hard coal from Russian suppliers were agreed back in 2021. As a result of Russia’s attack on Ukraine and the sanctions that came into force in April, Volkswagen immediately sought alternative suppliers and has already engaged them in the meantime. By the end of the transitional periods defined by the sanctions (August 2022) at the latest, new suppliers from the U.S., Central America and South Africa, among others, will secure the hard coal requirements of the Wolfsburg site. It goes without saying that Volkswagen complies with all sanctions and implements them in full.
We will continue to pursue the Volkswagen Group’s targets for reducing CO2 and decarbonization in relation to our own internal energy generation and do not see at present any long-term risk to achievement of the sustainability objectives we have set ourselves.
Has contract manufacturing at Nizhny Novgorod been discontinued?
The Volkswagen Group RUS began working with the contract manufacturer GAZ in Nizhny Novgorod in 2011. The U.S. imposed sanctions on Oleg Deripaska, the owner of GAZ, and his companies in April 2018. Since then, operation of the GAZ automobile plant requires a General License issued by the responsible U.S. agency OFAC. The last General License (GL 15L) allowed Volkswagen Group Rus to shut down operations in Nizhny Novgorod until May 25, 2022, after contract manufacturing of VOLKSWAGEN Group Rus models in Nizhny Novgorod had already been discontinued on March 3, 2022, against the backdrop of the general political and economic situation and the associated effects. Due to the high degree of uncertainty as regards the overall situation, we are currently unable to forecast when production in Nizhny Novgorod might be resumed.
The ŠKODA OCTAVIA, ŠKODA KODIAQ, ŠKODA KAROQ and Volkswagen Taos were made in Nizhny Novgorod. VOLKSWAGEN Group Rus continues to supply the dealers of these vehicles produced there with spare parts and fulfills its maintenance and warranty obligations. Due to the difficult situation and its consequences, such as the disruption of supply chains and restrictions on imports to Russia under the EU’s sanctions, the availability of some spare parts may be limited and there may be longer waiting times for warranty repairs.
Cars produced in the Volkswagen Group’s Russian plants were also exported to the CIS countries (Belarus, Azerbaijan, Kazakhstan, Armenia, Tajikistan and Uzbekistan). We are currently working on a new strategy for supplying these markets. Please understand that we are not able to provide further information on this subject at the moment.
Will production in Kaluga be resumed?
VOLKSWAGEN Group Rus has discontinued production in Russia until further notice. We are keeping a close eye on current developments. Due to the high level of uncertainty entailed by the overall situation, we are currently unable to predict when production in Russia will be able to resume.