Volkswagen has reported one of its worst financial performances in years, with operating profit more than halving in 2025 as the German automaker absorbs the combined weight of American tariffs, a collapsing position in China and deepening problems at two of its most profitable brands. The results confirm that Europe’s biggest auto manufacturer is fighting on multiple fronts simultaneously, and losing ground on most of them.
Annual operating profit came in at $10.4 billion, well short of what analysts had penciled in. The underlying margin for the year was 2.8%, a significant distance from the 8-10% range the company has publicly committed to by decade’s end. Group revenues were broadly unchanged at $373 billion. Management is guiding for some recovery in 2026, with a margin in the low to mid single digits, and revenue is expected to move within a modest range.
Porsche absorbed the sharpest blow within the group. The brand had stepped back from its electric vehicle ambitions the previous year as buyer appetite failed to materialize. Financial consequences for this move were severe, with full-year operating profit reduced to almost nothing.
Audi is dealing with its own version of the same problem. Furthermore, the ongoing Middle East conflict has created meaningful headwinds for premium vehicle sales in regions where luxury purchases are sensitive to geopolitical instability.
The erosion of Volkswagen’s position in China has been swift and damaging. Volkswagen relinquished the top sales position to homegrown rival BYD a year earlier than most expected. Geely then moved ahead in 2025, pushing the group to third in the world’s biggest car market. What was once the portfolio’s most reliable profit engine has been transformed.
Competitively priced domestic electric vehicles have undercut its long-standing advantages at pace in a big way. U.S. import tariffs have added billions to the cost base, compounding the pressure.
Oliver Blume, the group’s chief executive, acknowledged that the formula which generated decades of success is no longer viable in its current form. He described a business environment where new disruptions arrive frequently enough to make forward planning genuinely difficult. The group’s response involves removing around 50,000 positions from its German workforce by the end of the decade.
CFO Arno Antlitz said the adjusted margin is not sufficient for long-term sustainability and that spending cuts will continue at full pace.
For 2026, Volkswagen is looking for an operating margin of 4% to 5.5% and revenue growth of between zero and 3 percent. Analysts have clustered toward the optimistic end of that range, projecting a 5.2% margin. Even on that more favorable reading, the distance between where the company is and where it needs to be is substantial.
For rising EV firms like Rivian Automotive Inc. (NASDAQ: RIVN), the story of what is happening to legacy automakers like Volkswagen provides important lessons that they could benefit from while seeking to conquer domestic and international markets.
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