Volkswagen’s deliveries drop, highlighting Europe’s car industry challenges

(Reuters) -Volkswagen Group on Friday reported a 7% decline in third-quarter global deliveries, showing how Europe’s car industry is facing tough challenges, including weak demand from China and high production costs at home.

Europe’s car companies also have to contend with the impact of a potential trade war between Beijing and the European Union as the EU presses ahead with import tariffs on Chinese electric vehicles, imposed over alleged subsidies.

VW, Europe’s biggest automaker is undergoing a major revamp as it considers German plant closures for the first time due to weak European demand, competition from China, challenges presented by vehicle electrification, and high costs in Germany.

“A better cost base, particularly in Germany, is essential to remain successful in this environment in the future,” VW executive committee member Marco Schubert said in a statement.

Volkswagen (ETR:)’s deliveries to China, the world’s biggest car market, fell by 15% to 711,500 vehicles. This dragged down the global figure, which dropped to 2.176 million vehicles.

Rivals BMW (ETR:) and Mercedes said on Thursday that sluggish demand and stiff competition in China hit third quarter sales.

Schubert said the situation in China, where Volkswagen is being squeezed by local competitors offering cheaper electric models, was “particularly intense”.

VW has cut costs for fully electric vehicle production in China, a spokesperson for the group said in the statement, adding that the company will not sacrifice profitability for market share.

The cost cuts have resulted in fully battery electric vehicle sales growth in China, adding 5.2% in the quarter to 57,500 cars.

But on a global scale, fully battery electric deliveries fell by 9.8% to 189,400 vehicles, weighed down by a 41% drop in the U.S.

The automaker has cut its annual outlook for a second time in less than three months and expects to deliver around 9 million cars this year, representing an annual decline.