Volkswagen shares climbed 6% on Friday after the company's board of directors approved sweeping cost cuts designed to confront mounting challenges, including fierce Chinese competition and U.S. tariffs.

Investors welcomed the news that CEO Oliver Blume succeeded on Thursday in pushing the streamlining effort through the board, where employee representatives hold significant influence.

The plan calls for reducing Volkswagen's workforce by 50,000, phasing out four factories in Germany to eliminate costly excess production capacity, and cutting the company's roughly 150 different models to half that number.

China may be the biggest challenge the company faces. Once a major source of profits, the overall Chinese market has slumped by more than 20% this year as local competitors launch hundreds of new models amid intense price competition. Volkswagen was historically one of the earliest and most successful Western automakers in China, through its joint ventures with SAIC and FAW, which made the market's deterioration especially consequential for the group's earnings.

Volkswagen has also been hit by higher U.S. tariffs on cars imported from Europe. The automaker's profits fell 31% in the first half of the year to 3.1 billion euros ($3.6 billion), even though it sold more cars worldwide outside of China than in the same period a year earlier.

Volkswagen's worker-friendly governance structure—employee representatives hold half the board seats while the state government of Lower Saxony holds two—had raised doubts about whether Blume could push his plan through, particularly after it was rejected at a board meeting in July. That structure, rooted in Germany's postwar system of codetermination, gives labor a formal role in strategic decisions that is unusual among global automakers.

The board's decision marks a "much better than feared outcome," Deutsche Bank analysts wrote. While the plan does not resolve Volkswagen's challenges overnight, "it removes one of the biggest investor concerns: whether the company is still capable of making the difficult decisions required to address them." The analysts added that the move could have a "halo effect" on other German manufacturers, encouraging them to undertake similar difficult adjustments. Germany's broader automotive sector, the country's largest industry, has been under strain from high energy costs, softening demand in Europe, and the costly transition to electric vehicles, making Volkswagen's restructuring a closely watched test case for the industry.

Volkswagen said that "currently" it plans to phase out production between 2031 and 2034 at four plants—Emden, Zwickau, Hannover, and Neckarsulm—though it held open the possibility of finding other uses for those facilities. Reducing the number of models would raise volumes per model, lowering fixed costs. The long timeline before any plant phase-out begins leaves considerable room for negotiation with labor representatives over alternative uses for the sites.

The job cuts will include management personnel as well as assembly line workers and will be accompanied by a streamlining of management structures to speed up decision-making.

Volkswagen, which employs some 650,000 people, is already reducing headcount under an earlier restructuring. In an online Q&A published on the company's website on Aug. 21, Blume said the company had already signed 37,000 contracts to reduce headcount under that earlier round of cost cuts, mainly through early retirement.

Alongside the core Volkswagen brand, the company's other nameplates include Audi, Skoda, Porsche, and SEAT.

This story was originally featured on Fortune.com.