Automaker Volkswagen, or VW, which sells vehicles under the Audi, Bentley, Cupra, Jetta, Lamborghini, Porsche, SEAT, Skoda, and Volkswagen brands, has put shrinking sales in China among the reasons it is considering closing factories in Germany.

The 87-year-old German giant has seen its market share contract in China as rival car companies have taken bites out of its previously dominant position, prompting Oliver Blume, its chief executive officer, to warn this week that his company is now mulling something that was previously thought impossible.

"The economic environment became even tougher, and new competitors are entering the European market. In this environment, we as a company must now act decisively," Blume said in a statement.

He added that "Germany in particular as a manufacturing location is falling further behind in terms of competitiveness" with rivals, especially electric vehicle makers from China, able to undercut its performance.

Describing the European automotive industry as being in a "very… serious situation", Blume said the company's plan to save 10 billion euros ($11.03 billion) of costs by 2026 was already several billion euros behind target.

VW has been attempting to bring down costs by reducing the size of its workforce through offers of early retirement and voluntary redundancy packages. But the company said relying on not replacing retiring workers will be "insufficient to achieve the urgently needed structural adjustments for greater competitiveness in the short term "and that it is now expecting to make compulsory job cuts, something it had previously said would not happen before 2029.

VW also said its financial situation means "even plant closures at vehicle production and component sites can no longer be ruled out".

The German state of Lower Saxony, where VW is headquartered, owns 20 percent of the company and has traditionally blocked proposed job cuts, but even it admitted on Monday layoffs now appear inevitable.

Stephan Weil, the prime minister of Lower Saxony, said it was "undisputed that VW needs to take action", although he said the state government will fight hard to avoid factory closures.

"We expect that (closures) will simply not happen," he said, promising the state government will "pay particular attention to this".

VW, which employs around 600,000 people worldwide of which 300,000 are in Germany, has been especially disappointed with lower than expected demand for its electric vehicles.

The Guardian newspaper said the company is considering closing two German factories, and that its works council, which represents employees, has been informed.

The company said in July it was considering closing an Audi factory in Belgium, which would be the group's first global factory closure for 40 years.

VW's difficulties come as Germany's economy has been teetering on the edge of a technical recession for around two years.