BERLIN

German vehicle giant Volkswagen will close a manufacturing plant in Germany on Tuesday for the first time in its 88-year history.

Volkswagen agreed with the works council and union in 2024 to lay off 35,000 people and reduce capacity in Germany in response to competition from Chinese manufacturers, declining demand in the European market, and slower-than-expected adoption of electric vehicles.

As part of the agreement, Volkswagen's vehicle production in Dresden, the capital of the eastern German state of Saxony, was to cease by the end of this year.

The firm will halt vehicle production at its Dresden plant on Tuesday, marking the first time in its 88-year history that the company has closed a production facility in Germany.

The closure of the Dresden factory comes after Volkswagen experienced cash flow problems due to weak Chinese sales, declining European demand, and pressure on sales to the US from tariffs. The company needs to finance investments of approximately €160 billion ($187.9 billion) over the next five years.

Volkswagen's Dresden factory has produced fewer than 200,000 vehicles since it began production in 2002.

The company had positioned the Dresden plant as a flagship showcasing the company's capabilities at the time. Initially, the Phaeton and later the ID.3 were produced there. However, neither model contributed to Volkswagen's success.

The closure of this factory was seen as a small step by Volkswagen to survive amid fierce competition from China, US tariffs, excessive bureaucracy in Germany, high energy costs, extensive employee rights, and unprecedented internal bureaucracy.