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Closure would be first VW factory shutdown in nearly 4

decades

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Volkswagen, parent company Porsche SE cut 2024 profit

forecasts

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Q8-etron production could end in 2025 - source

(Adds further detail and background throughout)

By Victoria Waldersee and Christina Amann

BERLIN, July 9 (Reuters) - Volkswagen on Tuesday warned

it may close the Brussels site of its luxury brand Audi due to a

sharp drop in demand for high-end electric cars that has hit

Europe's top carmaker, forcing it to cut its margin target for

the current year.

Volkswagen has not shut down a plant since it

closed the Westmoreland site in Alabama in 1988, and the last VW

brand chief to threaten closures in Europe stepped down months

after doing so, according to a labour source.

Automakers have been hit hard by lower than expected EV

demand after investing heavily in capacity and technology

development, with Audi warning earlier this year its sales would

dip in 2024 as it worked on introducing new models while also

cutting costs.

Volkswagen said the costs of finding an alternative use for

the Brussels plant or closing it, as well as other unplanned

expenses, would have an impact totalling up to 2.6 billion euros

($2.8 billion) in the 2024 financial year.

It lowered its forecast for operating returns to 6.5-7% from

7-7.5%, prompting parent company Porsche SE, which

owns just under a third of Volkswagen AG but holds most of the

voting rights, to lower its earnings forecast to 3.5 billion to

5.5 billion euros.

Frankfurt-listed shares in Volkswagen and Porsche

SE were down 1.7% and 2.1%, respectively, following

the news.

Demand for Audi's Q8 e-tron, launched in 2018, had dropped

sharply and the carmaker was considering ending its production

altogether, with one source close to the company saying this

could happen in 2025.

LONG-STANDING CHALLENGES

The Brussels site, which built around 50,000 cars last year,

also faced "long-standing structural challenges" including

difficulty in changing its layout due to proximity to the city

and high logistics costs.

A consultation process would now begin to find alternative

solutions for the plant, which employs around 3000 people. "This

may include ceasing operations if no alternative is found,"

Audi's statement said.

Volkswagen's first quarter operating profits were down 20%,

in part hampered by delivery delays at Audi, after the Brussels

plant closed for two weeks because of component shortages in

February.

A spokesperson said at the time that Audi was assessing

options for what could be produced at the plant.

"The employee representatives of Audi AG are calling for a

future-proof perspective for the plant and our colleagues in

Brussels. The Audi management must take responsibility for the

site," Rita Beck, spokeswoman for the Audi Committee in the

European VW Group Works Council, said.

Other unplanned expenses weighing on the Volkswagen Group

included exchange rate losses because of the deconsolidation of

Volkswagen Bank Rus in its financial services division, and the

planned closure of the gas turbine business of subsidiary MAN

Energy Solutions.

($1 = 0.9252 euros)