VW Group is struggling to turn its electric vehicle efforts into higher profits, with the German auto conglomerate openly admitting that battery cars still generate lower profits than their combustion engine counterparts. The admission comes as the automaker faces growing pressure from China, U.S. tariffs and growing competition in Europe.
“The commercial success of our electric vehicles places additional pressure on our profits, as we currently earn less from electric vehicles than from combustion engine vehicles,” Arno Antlitz, chief financial officer and chief operating officer, said in a statement accompanying the company’s nine-month results released today.
These comments highlight a difficult balancing act for the Group. Demand for its electric cars is growing, but selling more electric vehicles doesn’t necessarily translate into higher profits. The company must invest heavily in its electric range while facing lower margins, price competition and a difficult global market.
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Source: Volkswagen
The VW group is caught between a rock and a hard place
The profitability challenge could become even more pronounced with the next entry-level electric vehicle. The production version of the ID. The Every1 concept is expected for 2027 and could revive the ID. Up nameplate, positioning it as the brand’s cheapest electric car. While a lower price should make electric vehicle ownership more accessible, it could also leave the automaker with razor-thin margins. Profitably building an affordable electric vehicle will be another major test for a company already admitting that its more expensive electric models generate less money than combustion-engine vehicles.
But here’s the most important thing: The VW Group must sell more electric vehicles to reduce CO₂ emissions from its entire fleet and avoid potentially hefty fines for failing to meet EU regulatory targets. That puts the automaker between a rock and a hard place: It must sell more electric cars to stay compliant, even though those vehicles currently generate lower profits than combustion-engine models.
On the positive side, electric vehicles accounted for 40% of the group’s order book in Europe in the first nine months of the year, and its family of urban electric cars attracted around 150,000 orders. The company sees the VW ID. Polo, VW identifier. Cross, Cupra Raval and Skoda Epiq as important elements of its efforts to develop electric mobility in Europe.
While this is good news for its electrification strategy, it creates another profitability problem. Every customer who chooses an electric vehicle over a gasoline model potentially means one fewer sale of a more profitable vehicle, leaving VW with lower margins and factories built for combustion-engine cars that risk becoming underutilized.
VW Group faces myriad challenges
Other headwinds compound the problem. The VW group highlights a “strongly contracting” Chinese market, increasingly aggressive prices from Chinese car manufacturers in Europe and American customs tariffs. Together, these pressures make it more difficult for the group to improve its margins across its brands.
“Our operating return on sales after nine months is only 3.8 percent. This means that for every €100 of turnover, there remains less than €4 of operating profit. This is not enough in the long term. Even in this challenging environment, we want to continue to invest in highly competitive vehicles and cutting-edge technologies for our customers. We can only achieve this if profitability increases.
Antlitz claims that the VW Group has already presented an extensive cost program worth around 31 billion euros. Its priorities include simplifying the model range, streamlining organizational structures, reducing vehicle and overhead costs, improving factory efficiency and accelerating technology development.
Cost-cutting carnage at the VW Group
Up to 50% of models could potentially be withdrawn from the market, and the Group plans to significantly simplify its spare parts inventory to further improve economies of scale. Additionally, the long-established SEAT brand may be phased out, although the Group has not yet made a final decision.
The VW Group is taking drastic steps to turn around its finances, targeting around 100,000 job cuts worldwide as part of its restructuring plan. It also warned that it could not guarantee future production allocations for four German factories (Emden, Zwickau, Hannover and Neckarsulm) beyond 2031 to 2034, leaving their long-term future uncertain. The company is currently evaluating alternative uses for these sites rather than announcing outright closures, but further factory closures or production reductions remain possible as the company seeks to reduce costs and combat excess capacity.
With profitability under pressure, the VW Group knows that time is running out to turn the situation around: “We cannot afford to waste time. We must act quickly and decisively.”
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