Volkswagen and its Chinese joint venture partner SAIC Motor Corp plan to shut a factory in Nanjing as early as next year due to declining local sales of some combustion-powered vehicles and the rising popularity of EVs.

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The plant handles the production of the VW Passat as well as several Skoda models and has an annual capacity of as many as 360,000 vehicles. Unnamed sources say the brand is conducting a strategy review of Skoda due to a drop in sales. A second plant that builds Skoda models, located in the city of Ningbo in the Zhejiang province, has also been idled for months and may also be closed.

Read: VW Faces Union Fury Over Proposed Factory Closures

When quizzed about the reported closure, VW China said it is “transforming vehicle production and the components plants step by step,” but added “all SAIC Volkswagen factories are operating normally according to the market requirements and our forecast.”

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The German automotive juggernaut employs more than 90,000 people in China and operates 39 factories. However, production at these sites is down more than a quarter from a peak before the COVID-19 pandemic and down roughly half from 2015. Bloomberg adds that factory utilization at the SAIC-VW joint venture stands at just 58% of a possible 2.1 million units.

Speaking with Reuters, a source says the joint venture is yet to decide if it will completely close the factory or if it will try to sell it. Some of the workers from the site could be told to relocate to work at SAIC-VW’s Yizheng site, which currently handles production of its Lavida models.

This wouldn’t be the first time SAIC-VW has stopped building vehicles at one of its Chinese plants. In 2022, it moved production from its No. 1 Auto Plant in Shanghai’s Anting manufacturing zone to a plant in Yizheng.

It’s not just one or two of VW’s Chinese factories that could be shuttered. The carmaker is also pondering the possibility of closing two factories in Germany in an effort to save money. This plan has come under fierce opposition from the powerful labor union that represents many of VW’s workers across its home market.

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