Volkswagen wants to overcome the "growing pains of transformation"

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Author | Chai Xuchen

Editor | Zhou Zhiyu

In the era of sweeping transformation in the global automotive industry, traditional automotive giants are undergoing unprecedented tests.

Volkswagen Group has recently presented a mixed report card.

On the surface, Europe's largest automaker still maintains a massive presence. Last year, it achieved sales revenue of 321.9 billion euros, basically flat compared to 324.7 billion euros in 2024; global car sales stood at around 9 million vehicles, maintaining a historic high.

Another set of data is even more striking: In 2025, the group’s operating profit is only 8.9 billion euros, down about 53% from 19.1 billion euros in 2024, with the operating profit margin dropping from over 6% to 2.8%. Last year, Volkswagen’s annual performance guidance was downgraded three times, and the operating profit margin guidance went from 5.5-6.5% at the beginning of the year to 2-3% at the end.

This situation of “increased revenue but not profit” reflects the immense growing pains that traditional car makers must endure in the process of transitioning to electrification and intelligentization. Recently, Volkswagen Group CFO Arno Antlitz’s plan to cut 50,000 employees has further displayed this pain to the public.

But this is not a signal of decline—it is the strategic decision of a decades-old industrial giant facing fundamental industry changes, akin to cutting off one’s arm to survive.

Challenges

For this auto behemoth, the sharp drop in profits is not caused by a single factor, but from multiple pressures combined.

One important variable comes from the North American market. Volkswagen identifies North American tariffs as a key external pressure on both annual profits and cash flow. CFO Arno Antlitz pointed out in the financial report meeting: "Tariffs in the US have a big impact." In Q3 last year, Volkswagen directly stated that tariffs brought a burden of nearly 5 billion euros.

However, it isn’t only Volkswagen suffering; Stellantis and Mercedes both withdrew their annual profit guidance last year due to tariffs.

Another source of pressure comes from China, the largest market. Last year, Volkswagen's deliveries in China were 2.69 million vehicles, down 8% year-on-year. Growth in European and American markets was almost offset by declines in Asia-Pacific and China.

Breaking down the sales structure, fuel vehicles are still the main force. The Lavida, Sagitar, and Passat, priced around 100,000-250,000 RMB, ranked among the top three in sales, together occupying a quarter of annual sales.

Finally, the key factor weighing down profits is brand and organizational restructuring.

Volkswagen’s sports car brand Porsche used to be the group's cash cow, but in 2025 it barely made a profit, with revenue down to 32.185 billion euros and operating profit only 90 million euros. The operating profit margin dropped from 14.5% in 2024 to 0.3%. In contrast, Skoda’s return rate exceeded 8%.

Porsche’s biggest issue lies in its misjudgment regarding transitioning to electric vehicles.

Last September, Porsche announced it would readjust its product strategy and return to the “parallel development of fuel, plug-in hybrid, and pure electric” routes, which is expected to bring a maximum burden of 1.8 billion euros to operating profits in 2025; the total cost of related special expenses for the year is about 3.1 billion euros. These two factors caused a negative impact of 5 billion euros on Volkswagen Group’s operating performance in 2025.

Meanwhile, structural overcapacity and persistently high operating costs have become heavy burdens pressing on the group’s shoulders.

After years of volatility, the overall capacity of the European automotive market can no longer return to its peak levels. The disappearance of large amounts of market demand means that some of Volkswagen’s factories in Europe are facing idle capacity problems.

Combined with recent information released by the group’s management, this structural market shrinkage directly leads to painful restructuring of Volkswagen’s human resource structure. The plan to cut about 50,000 jobs by 2030 is precisely to adapt to this reduced market scale.

Although the profit statement for 2025 appears somewhat gloomy, a deep analysis of Volkswagen Group’s core data shows that this giant hasn’t lost control of the situation. From the details in the financial report, the automaker still maintains a solid foundation.

In 2025, Volkswagen’s automotive business net cash flow reached 6.4 billion euros, up 24% year-on-year, far above 5.2 billion euros in 2024. Meanwhile, group net liquidity remained stable at 34.5 billion euros by the end of 2025. For a car company undergoing a large-scale technological transformation, ample cash reserves mean stronger strategic buffers.

Counterattack

To address these challenges, Volkswagen has already begun multiple adjustments.

The most direct step is strengthening cost control and organizational efficiency. The aforementioned layoff plan for 50,000 employees is a direct reflection of this strategy. Volkswagen hopes to gradually lower operating costs through reducing redundant positions, optimizing production systems, and integrating brand resources.

Currently, on the product side, Volkswagen is gearing up for an unprecedented offensive.

In 2025, the group has launched 30 brand new models, but this is just the prelude. Obermu mentioned that from Q2 through Q4 this year, the group will launch 7 new models, and these will clearly boost sales in the second half. The overall performance is expected to see a significant leap in 2027.

In the mass market, prices are stabilizing in 2025, and locally produced products featuring new technology and new cost structures are entering the market, which will start contributing to financials in 2027.

At the same time, Volkswagen is accelerating its electric vehicle lineup.

The group announced that in 2026 it will launch a series of more cost-effective pure electric models to boost competitiveness in the EV sector. Currently, pure electric orders in Europe account for about 22% of pending deliveries, indicating fast-growing demand. For Volkswagen, controlling EV costs while maintaining brand premiums will be key to profit recovery.

For the China market, in the past year, the group’s proportional operating profit in China dropped from 1.742 billion euros to 958 million euros, but the toughest period seems to be over. Going forward, China is seen as Volkswagen’s absolute main battlefield for strategic breakthrough.

In recent years, Volkswagen has adopted a “In China, For China” strategy, enhancing responsiveness through local R&D and supply chain systems.

The group has established its largest R&D center outside Germany in China—Volkswagen Automotive Technology Co., Ltd. (VCTC), and has strengthened its software unit CARIAD’s capabilities in China. In the next few years, Volkswagen plans to launch its largest product offensive ever in China, aiming to regain competitive advantage in smart EVs.

Now, Volkswagen’s new cars in China are more localized; R&D cycles have been shortened by over 30%, and material costs reduced by over 40%. This experience not only boosts Volkswagen’s competitiveness in China, but can also be replicated elsewhere.

The joint venture Coretronic formed with Horizon Robotics not only helps Volkswagen catch up in intelligent driving but also provides a self-developed “brain” for intelligent connected vehicle system-level chips. Additionally, the CEA electronic and electrical architecture achieved mass production within 18 months.

Meanwhile, the US market is also listed as a key expansion area. As the global industrial chain changes, Volkswagen is increasing local production and technology investment in North America, with batteries, software, and autonomous driving technology earmarked as future focal points.

Looking back, the challenges Volkswagen faces now are actually the common issues confronting traditional automotive industry as a whole. Electrification, software-ization, and smart driving trends are reshaping automotive competition rules. The advantages built on scale, brand, and manufacturing must now be combined with software R&D, data ecosystems, and new supply chain systems.

For Volkswagen Group, with nearly 90 years of history, this transformation cannot happen overnight. Fluctuating profits, organizational adjustments, and strategic trial-and-error are almost inevitable stages.

As Volkswagen Group CEO Obermu said, the automotive industry has fundamentally changed, and Volkswagen is entering the "next stage" of transformation. The goal in this stage goes beyond just producing cars—it is to become a “global automotive technology leader.”

In this process, the profit decline in 2025 may be just a temporary cost. The real test is whether this traditional automotive giant can complete the leap from “manufacturing-driven” to “technology-driven” in the next few years.

If the transition goes smoothly, Volkswagen still stands a chance to occupy an important position in the new automotive industry landscape; if the pace is slow, the competitive pressure from Chinese new energy automakers and tech companies will intensify.

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