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Author | Chai Xuchen
Editor | Zhou Zhiyu
In the grand era of transformation in the global automotive industry, traditional automotive giants are undergoing unprecedented tests.
Volkswagen Group recently delivered a mixed report card.
On the surface, this largest automotive manufacturer in Europe still maintains a massive scale. Last year, it achieved sales revenue of €321.9 billion, roughly in line with €324.7 billion projected for 2024; global vehicle sales were about 9 million units, also maintaining historical highs.
Another set of data is even more striking: the group's operating profit for 2025 is only €8.9 billion, a decrease of about 53% compared to €19.1 billion in 2024, and the operating profit margin has dropped from over 6% to 2.8%. Last year, Volkswagen Group's full-year performance guidance underwent three downward revisions, with the operating profit margin guidance reduced from an initial 5.5-6.5% to 2-3% by the end of the year.
Such a situation of &#34;increased revenue without increased profit&#34; reflects the immense growing pains that traditional automakers must endure during their transition to electrification and intelligence. Recently, the plan announced by Volkswagen Group CFO Arno Antlitz to cut 50,000 jobs has further showcased this pain to the public.
However, this is not a signal of decline, but rather a strategic decision akin to a heroic severance made by an industrial giant with decades of history in the face of fundamental changes in the industry.
<h2>Challenges</h2>
For this automotive giant, the significant decline in profit is not caused by a single factor, but rather the result of multiple pressures.
One important variable comes from the North American market. Volkswagen has identified North American tariffs as a key external pressure on annual profits and cash flow. CFO Arno Antlitz pointed out in the earnings call that &#34;the impact of U.S. tariffs is significant.&#34; In the third quarter of last year, Volkswagen explicitly stated that tariffs brought a burden of nearly €5 billion.
However, this is not a pain unique to Volkswagen; Stellantis and Mercedes-Benz also withdrew their full-year profit guidance last year due to tariff issues.
On the other hand, pressure comes from the largest market, China. Last year, Volkswagen's deliveries in China were 2.69 million units, a year-on-year decline of 8%. The growth in European and American markets was almost offset by the decline in the Asia-Pacific and Chinese markets.
Breaking down the sales structure, the mainstay of deliveries remains internal combustion engine vehicles. The models Lavida, Jetta, and Passat, priced around €100,000 to €250,000, ranked among the top three in model sales, collectively accounting for a quarter of the annual sales.
Finally, the key drag on profits is brand and organizational restructuring.
Volkswagen's sports car brand Porsche was once the cash cow of the group, but by 2025, it is expected to have almost no profit, with revenue dropping to €32.185 billion and operating profit reduced to €0.09 billion, with the operating profit margin falling from 14.5% in 2024 to 0.3%. In contrast, Skoda's return rate exceeds 8%.
Porsche's biggest problem lies in its misjudgment regarding the transition to electric vehicles
In September last year, Porsche announced separately that it would readjust its product strategy, returning to the route of &#34;fuel, plug-in hybrid, and pure electric in parallel,&#34; which is expected to bring a burden of up to €1.8 billion to operating profit in 2025; the total special expenses related to this strategic restructuring for the year amount to approximately €3.1 billion. These two factors will have a negative impact of €5 billion on the operating performance of Volkswagen Group in 2025.
At the same time, structural overcapacity and persistently high operating costs have become a heavy burden on the group.
The overall capacity of the European automotive market, after years of fluctuations, can no longer recover to the peak level. The significant disappearance of market demand means that some of Volkswagen's factories in Europe are facing the problem of idle capacity.
Combined with the recent information released by the group's management, this structural market contraction has directly led to Volkswagen needing to painfully reshape its human resource structure. The plan to cut about 50,000 jobs by 2030 is precisely to adapt to this shrinking market scale.
Although the profit statement for 2025 appears somewhat bleak, a deeper analysis of Volkswagen Group's core data reveals that this giant has not lost control of the situation. From the details of the financial report, this automotive giant still possesses a relatively solid foundation.
In 2025, Volkswagen's business net cash flow is expected to reach €6.4 billion, a year-on-year increase of 24%, far exceeding the €5.2 billion in 2024. Meanwhile, by the end of 2025, the group's net liquidity will remain at a stable level of €34.5 billion. For a car company undergoing a large-scale technological transformation, ample cash reserves mean stronger strategic buffering capability.
<h2>Counterattack</h2>
To respond to challenges, Volkswagen has begun to promote adjustments in multiple areas.
The most direct step is to strengthen cost control and organizational efficiency. The aforementioned plan to lay off 50,000 employees is the most direct manifestation of this strategy. Volkswagen hopes to gradually reduce operating costs by eliminating redundant positions, optimizing the production system, and integrating brand resources.
Currently, on the product side, Volkswagen is gearing up for an unprecedented offensive.
In 2025, the group has launched 30 new models, but this is just the prelude. Obermüller mentioned that from the second quarter of this year to the fourth quarter, the group will launch 7 new models, which will significantly boost sales in the second half of the year. The overall performance will see a noticeable leap in 2027.
In the mass market, on one hand, prices are stabilizing in 2025, and on the other hand, localized products equipped with new technologies and a new cost structure are beginning to enter the market, with these new cars expected to contribute to finances starting in 2027.
At the same time, Volkswagen is also accelerating its electric product layout.
The group stated that it will launch a series of more cost-effective pure electric models in 2026 to enhance the market competitiveness of its electric vehicle business. Currently, pure electric vehicle orders in the European market account for about 22% of pending orders, indicating that demand for electric vehicles is rapidly growing. For Volkswagen, how to control electric vehicle costs while maintaining brand premium will be key to future profit recovery
For the Chinese market, over the past year, the group's proportional operating profit in China has decreased from €1.742 billion to €958 million, and the most difficult moments seem to have begun to pass. Next, the Chinese market is viewed by Volkswagen as the absolute main battlefield for strategic breakthroughs.
In recent years, Volkswagen has proposed the strategy of &#34;In China, for China,&#34; enhancing response speed through local R&amp;D and supply chain systems.
The group has established the largest R&amp;D center outside Germany, Volkswagen Automotive Technology Co., Ltd. (VCTC), and strengthened the capability building of its software department CARIAD in China. In the coming years, Volkswagen plans to launch the largest product offensive in its history in China, hoping to regain a competitive advantage in the smart electric vehicle sector.
Today, the group's new cars in the Chinese market are more localized, with R&amp;D cycles shortened by over 30% and material costs reduced by more than 40%. This experience not only helps Volkswagen enhance its competitiveness in the Chinese market but can also be promoted to other regions of the world.
The joint venture CoolCore established with Horizon not only helps Volkswagen catch up in intelligent driving but also becomes the self-developed &#34;brain&#34; for intelligent connected vehicle system-level chips. Additionally, the CEA electronic and electrical architecture has completed mass production within 18 months.
At the same time, the U.S. market has also been listed as a key expansion area. With changes in the global industrial chain landscape, Volkswagen is increasing its local production and technological investment in North America, focusing on batteries, software, and autonomous driving technology as key investment directions for the group in the future.
Looking back, the challenges currently faced by Volkswagen are actually common issues for the entire traditional automotive industry. The waves of electrification, softwareization, and intelligent driving are reshaping the competitive rules of the automotive industry. Advantages that were previously established based on scale, brand, and manufacturing capability must now be combined with software R&amp;D capabilities, data ecosystems, and new supply chain systems.
For Volkswagen Group, which has a history of nearly 90 years, this transformation cannot happen overnight. Profit fluctuations, organizational adjustments, and strategic trial and error are almost inevitable stages.
As Volkswagen Group's management board chairman Herbert Diess stated, the automotive industry environment has fundamentally changed, and Volkswagen is entering the &#34;next stage&#34; of transformation. The goal of this stage is not just to produce cars but to become a &#34;global automotive technology leader.&#34;
In this process, the profit decline in 2025 may be more like a phased cost. The real test lies in whether this traditional automotive giant can complete the leap from &#34;manufacturing-driven&#34; to &#34;technology-driven&#34; in the coming years.
If the transformation goes smoothly, Volkswagen still has the opportunity to occupy an important position in the new automotive industry landscape; however, if the pace is slightly slow, the competitive pressure from Chinese new energy vehicle companies and technology firms will continue to approach

VWAGY

VOW3

VWAPY

- Volkswagen Group faces significant challenges amid the global automotive industry's transformation, reporting stable sales but a drastic drop in operating profit for 2025.  
- The decline is attributed to multiple pressures, including rising tariffs in North America and a decrease in sales in China, coupled with an ongoing restructuring to adapt to market changes.  
- Despite these issues, Volkswagen maintains a solid cash flow and is implementing strategies to enhance efficiency and competitiveness in the electric vehicle market, indicating its aim to navigate these transformations effectively.

Volkswagen wants to overcome "transformation pains"