Volkswagen has denied reports that it is in talks with Chinese carmakers about using spare production capacity at its European factories, despite acknowledging that excess capacity remains a significant challenge for the company.

Speaking at a workers’ assembly in Wolfsburg, Volkswagen CEO Oliver Blume said there were currently no discussions or plans involving Chinese manufacturers. However, he stressed that the issue of underutilised factories in Europe and Germany must be addressed if the company is to remain competitive in an increasingly challenging market.

The comments come as Europe’s largest carmaker continues to grapple with weak demand, falling profits and growing competition, particularly from Chinese brands expanding their presence in Europe. Volkswagen has spent the past three years implementing cost-cutting measures, including around 50,000 job reductions across its operations in Germany, including the Audi and Porsche brands.

Blume said these measures have helped strengthen the company during a period of economic uncertainty marked by tariffs, changing consumer demand and shifting global trade patterns. However, he warned that European vehicle sales are unlikely to return to pre-pandemic levels.

The Volkswagen chief also highlighted the need for greater localisation in major markets such as China, arguing that the company’s long-standing strategy of exporting vehicles from Germany to the rest of the world is becoming less viable.

Recent comments by Blume suggesting that partnerships with defence companies or plant-sharing arrangements could help utilise excess factory capacity had fuelled speculation about possible cooperation with Chinese automakers. Regional politicians in Germany have expressed openness to such arrangements, although critics warn that helping Chinese manufacturers establish a stronger foothold in Europe could ultimately benefit Volkswagen’s competitors.

Meanwhile, Volkswagen is reportedly progressing with plans to sell its Osnabrück factory to a defence-sector partner. The company’s works council has urged management to focus on improving Volkswagen’s products and competitiveness rather than continuing speculation over plant closures and alternative uses for its manufacturing facilities.