Volkswagen is facing another challenging year as tariffs and intense competition in China continue to weigh on its performance. Europe’s largest automaker reported a sharp decline in operating profit on Tuesday and warned that its profit margins are likely to recover only gradually.
Like many global car manufacturers, Volkswagen is dealing with pressure in several key markets. U.S. tariffs have cost the company billions of euros, while rising domestic competitors in China have reduced its market share in the world’s largest automotive market.
The German auto group, which owns brands such as Porsche and Audi, now expects its operating margin to range between 4% and 5.5% in 2026. This follows a margin of just 2.8% in 2025, compared with 5.9% recorded the year before.
Analysts surveyed by Visible Alpha estimate that Volkswagen’s operating margin could reach around 5.2% this year, placing expectations near the upper end of the company’s forecast range.
Volkswagen Faces a Changing Global Market Environment
Chief Executive Officer Oliver Blume acknowledged that the company is navigating a much tougher business environment. According to Blume, the global automotive sector has shifted significantly, forcing Volkswagen to adapt its strategy to new market realities.
Volkswagen’s operating profit dropped by more than half in 2025, falling to 8.9 billion euros ($10.4 billion). The figure came in below analysts’ expectations of 9.4 billion euros. The decline was largely driven by higher tariffs and strategic changes at Porsche, which temporarily slowed its electric vehicle transition last year due to weaker-than-expected demand.
Despite these challenges, Volkswagen’s total revenue remained stable at around 322 billion euros. However, the company expects only limited growth in the coming year, forecasting revenue expansion of between 0% and 3% in 2026. Market analysts generally expect results toward the higher end of that range.
Cost Cuts and Restructuring Plans
Chief Financial Officer Arno Antlitz said that new product launches and restructuring initiatives introduced in 2025 are expected to strengthen Volkswagen’s long-term resilience.
However, he noted that the company’s adjusted operating margin of 4.6%—excluding restructuring costs—is still not strong enough to ensure sustainable profitability. As a result, Volkswagen plans to continue implementing strict cost-reduction measures.
Earlier this year, the company reported net cash flow of 6 billion euros for 2025, significantly outperforming earlier expectations that had predicted little or no cash flow. The positive surprise triggered a rally in Volkswagen’s shares.
Nevertheless, the results also sparked criticism from labor unions. Worker representatives questioned the company’s financial narrative, particularly as Volkswagen simultaneously announced large-scale job reductions.
The automaker plans to cut around 50,000 jobs in Germany by 2030 as part of its broader restructuring strategy.
Porsche Restructuring Weighs on Results
Part of the restructuring includes major changes at Porsche. The luxury car brand experienced a dramatic drop in operating profit during 2025.
Porsche’s operating earnings fell by approximately 98%, declining to just 90 million euros. The collapse reflects the impact of strategic adjustments, including a pause in the company’s electric vehicle transition as demand for EVs softened in key markets.
