The public wants to overcome the "transformation pain."

Author | Chai Xuchen

Editor | Zhou Zhiyu

In the era of sweeping global automotive industry transformation, traditional automakers are facing unprecedented challenges.

Volkswagen Group recently delivered a mixed report card.

On the surface, this European largest automaker still maintains a massive scale. Last year, it achieved sales revenue of €321.9 billion, roughly flat compared to €324.7 billion in 2024; global vehicle sales were about 9 million, remaining at a record high.

Another set of data is even more striking: in 2025, the group’s operating profit is only €8.9 billion, down about 53% from €19.1 billion in 2024, with operating margin dropping from over 6% to 2.8%. Last year, Volkswagen’s full-year performance guidance was revised downward three times, with operating margin guidance cut from an initial 5.5-6.5% to 2-3% at year-end.

This “revenue growth but profit decline” situation reflects the immense pain traditional automakers must endure during their transition to electrification and intelligentization. Recently, Volkswagen Group CFO Arno Antlitz announced plans to cut 50,000 jobs, further exposing this pain to the public.

But this is not a sign of decline; rather, it is a strategic, “bold move” decision made by a century-old industrial giant in response to industry-wide fundamental changes.

Challenges

For this automotive giant, the sharp profit decline is not caused by a single factor but results from multiple pressures.

A key variable comes from the North American market. Volkswagen regards tariffs in North America as a critical external pressure on annual profits and cash flow. CFO Arno Antlitz pointed out during the earnings call, “U.S. tariffs have a significant impact.” In Q3 last year, Volkswagen openly stated that tariffs added nearly €5 billion in costs.

However, this is not unique to Volkswagen; Stellantis and Mercedes-Benz also withdrew their full-year profit guidance last year due to tariff issues.

Another pressure comes from China, the largest market. Last year, Volkswagen delivered 2.69 million vehicles in China, down 8% year-over-year. Growth in Europe and the Americas was almost offset by declines in Asia-Pacific and China.

Breaking down the sales structure, the main volume still comes from internal combustion engine vehicles. Models like Lavida, Sagitar, and Passat, priced around €10,000-25,000, ranked as the top three in sales, collectively accounting for a quarter of the annual sales.

Finally, a key factor dragging down profits is brand and organizational restructuring.

Porsche, Volkswagen’s sports car brand and once a cash cow, nearly made no profit in 2025, with revenue dropping to €32.185 billion and operating profit only €0.9 billion, with operating margin falling from 14.5% in 2024 to 0.3%. In contrast, Škoda’s return exceeds 8%.

Porsche’s biggest problem lies in misjudging the electric vehicle transition.

Last September, Porsche announced a strategic realignment, returning to a “parallel development of combustion, plug-in hybrid, and pure electric” models. It is expected to impose a maximum €1.8 billion burden on operating profit in 2025; related special expenses for the year total about €3.1 billion. These two factors will negatively impact Volkswagen Group’s operations by €5 billion in 2025.

Meanwhile, structural overcapacity and high operating costs have become heavy burdens on the group.

After years of fluctuation, the overall capacity of the European auto market has failed to recover to its peak levels. The disappearing market demand means some of Volkswagen’s factories in Europe face idle capacity issues.

Combined with recent management signals, this structural market contraction has directly led Volkswagen to painfully reshape its human resources. The plan to cut about 50,000 jobs by 2030 aims to adapt to this shrinking market.

Although the 2025 profit statement appears somewhat bleak, a deeper analysis of Volkswagen Group’s core data shows that the giant still maintains control over the situation. From the details in the financial report, the company still has a solid foundation.

In 2025, Volkswagen’s net cash flow reached €6.4 billion, up 24% year-over-year, significantly higher than €5.2 billion in 2024. Meanwhile, by the end of 2025, the group’s net liquidity remained stable at €34.5 billion. For a car company undergoing large-scale technological transformation, ample cash reserves mean stronger strategic buffer capacity.

Countermeasures

To address these challenges, Volkswagen has begun implementing multi-faceted adjustments.

The most direct step is strengthening cost control and organizational efficiency. The aforementioned plan to cut 50,000 jobs is the most direct reflection of this strategy. Volkswagen aims to reduce operational costs by eliminating redundant positions, optimizing production systems, and integrating brand resources.

On the product side, Volkswagen is preparing for an unprecedented offensive.

In 2025, the group launched 30 new models, but this is just the beginning. According to Obemumu, from Q2 2025 through Q4, seven new models will be launched, which are expected to significantly boost sales in the second half of the year. Overall performance is projected to see a clear leap in 2027.

In the mainstream market, prices are expected to stabilize in 2025, while locally developed products with new technologies and cost structures will begin entering the market, contributing to financial performance starting in 2027.

Meanwhile, Volkswagen is accelerating its electrification product layout.

The group plans to introduce a series of more cost-effective pure electric models in 2026 to enhance competitiveness in the EV market. Currently, electric vehicle orders in Europe account for about 22% of pending deliveries, indicating rapid growth in EV demand. For Volkswagen, balancing brand premium and controlling EV costs will be key to future profitability recovery.

In the Chinese market, last year, the group’s proportionate operating profit in China dropped from €1.742 billion to €958 million, but the toughest times seem to be behind. China is now regarded as the absolute main battlefield for Volkswagen’s strategic breakthrough.

In recent years, Volkswagen has proposed the “In China, for China” strategy, improving responsiveness through local R&D and supply chain systems.

The group established Volkswagen Automotive Technology Co., Ltd. (VCTC), the largest R&D center outside Germany, and strengthened CARIAD’s software capabilities in China. In the coming years, Volkswagen plans to launch its largest-ever product offensive in China, aiming to regain a competitive edge in smart electric vehicles.

Today, new models in China are more localized, with R&D cycles shortened by over 30% and material costs reduced by more than 40%. This experience not only enhances Volkswagen’s competitiveness in China but can also be applied globally.

The joint venture with Horizon, CoreRun, helps Volkswagen catch up in intelligent driving and has become the “brain” for self-developed automotive system chips. Additionally, CEA electronic and electrical architecture has been mass-produced within 18 months.

At the same time, the U.S. market is also a key expansion area. As the global supply chain landscape shifts, Volkswagen is increasing local production and technological investments in North America, focusing on batteries, software, and autonomous driving technologies.

Looking back, the challenges Volkswagen faces are shared by the entire traditional automotive industry. The wave of electrification, software development, and intelligent driving is reshaping the rules of automotive competition. Advantages built on scale, brand, and manufacturing capabilities now must be combined with software R&D, data ecosystems, and new supply chain systems.

For a group with nearly 90 years of history, this transformation cannot happen overnight. Profit fluctuations, organizational adjustments, and strategic trial-and-error are almost inevitable stages.

As Volkswagen Group Chairman Obemumu stated, the automotive environment has fundamentally changed, and Volkswagen is entering the “next phase” of transformation. The goal of this phase is not just to produce cars but to become a “global leader in automotive technology.”

In this process, the profit decline in 2025 may be more of a temporary cost. The real test is whether this traditional automaker can complete the leap from “manufacturing-driven” to “technology-driven” in the coming years.

If the transformation proceeds smoothly, Volkswagen still has the opportunity to hold an important position in the new automotive landscape; if it lags behind, competition from Chinese new energy vehicle companies and tech firms will continue to intensify.

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