Volkswagen (VW) is considering shutting down some of its German plants as the company faces increased competition from a surge of low-cost cars made in China. The German automaker’s CEO, Oliver Blume, recently announced that the European automotive industry is in a “serious situation,” highlighting the challenges posed by Chinese-made vehicles that are quickly gaining market share in Europe.

Chinese car manufacturers have seen a significant rise in their presence across the European Union (EU), with their share of the market reaching a record 11% in June. These vehicles, often heavily subsidized by the Chinese government, are undercutting European automakers on price, forcing companies like VW to rethink their operations.

Volkswagen’s potential plant closures in Germany would mark a significant shift for the company, as it has not closed a plant in its home country before. The last time VW closed a plant globally was in 1988 in Westmoreland, Pennsylvania. The move could also mean the elimination of job protections for German auto workers as the company looks to cut costs in response to the growing pressure from Chinese competitors.

The European Union has responded to the influx of cheap Chinese electric vehicles (EVs) by imposing temporary tariffs on these imports. However, analysts predict that China-made EVs could account for up to 25% of all electric vehicles sold in Europe by the end of the year, further intensifying the competition.

Volkswagen has previously faced criticism for its business operations in China, particularly in the Xinjiang region, where concerns about forced labor and human rights abuses have been raised. Despite these issues, VW continues to operate in the region, citing economic reasons.

As Volkswagen contemplates these drastic measures, the future of the European automotive industry remains uncertain, with Chinese manufacturers poised to continue their aggressive push into the market.